tips for a mortgage while you are self-employed
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Top tips for a mortgage while you are self-employed
Top Tips for Obtaining a Mortgage During Self-Employment: As a self-employed person, getting on the property ladder can seem like an unattainable feat, especially as it has become increasingly difficult to get a mortgage over the last few years. Fortunately, this is certainly not impossible and there are some ways to improve your chances of finding the best mortgage offers.
Top tips for a mortgage while you are self-employed
What you will need
It is important to first understand what kind of mortgage is needed and how to prove your income. This is mainly because you provide the prospective lender with a minimum of two years' account, a record of regular work and the ability to deposit a sizeable down payment, and, finally, a solid credit history. Normally, lenders also prefer having used an accountant to sort out all your paperwork so that you can organize and present your accounts clearly. This is especially helpful for self-employed, freelancers or entrepreneurs.
You should not worry too much if you can not provide accounts for two years, as long as you can prove that you have a steady income or are ready for future work.
One of the most important aspects of a mortgage is to make sure that you have a substantial amount of money for your deposit. This usually corresponds to about 5% of the property value. A house worth £ 350,000 would require a £ 17,500 bail. This shows the lender your ability to save and manage money and is ready to enter the real estate manager.
Likewise, having a high credit rating strengthens the creditors' trust in you and shows that you have had your finances for a long time. If you are an entrepreneur, you must review both your personal and your business credits. Before you check the creditworthiness of a lender, make sure that you have no outstanding debts and check for errors or mistakes that can be corrected.
How you can prove your income
As mentioned earlier, it is usually a good idea to provide two or more financial statements to a lender. These should be compiled and organized by an auditor, which guarantees the accuracy of this information to the lender. You should also be prepared to explain any fluctuations in your income, especially if you have earned significantly less than usual at some point in time. Your income information can be found in SA302 forms as well as in a "tax year overview" that the HMRC can provide.
You may also consider bringing your mortgage needs to a private bank, especially if you want to borrow more than £ 500,000. This is because private banks use a more flexible approach to income measurement and also look at their wealth and other sources of income.
If you are not trying to get a mortgage, accountants work with the self-employed to keep their taxable income low. While this is a positive thing when you pay taxes, finding a mortgage can affect your chances.
Retained profits
If you are the director of a limited liability company, you may face additional challenges. For example, retained earnings, ie, profits that you want to keep in your business instead of using them for income or dividend purposes. While some lenders will take into account the retained earnings, most will not, and this may affect your chances of securing a mortgage.
Here, a mortgage broker can be invaluable. They can help you find lenders that include retained earnings in their calculations. Mortgage brokers are a good idea for all self-employed - it's almost always a free service (lenders pay the brokerage fees) and they help you find lenders accustomed to giving self-employed mortgages.
Do you pay more?
In general, the cost of your loan is not much higher than any other. However, if you only provide your lender with accounts for one year, you should expect a price increase. The Guardian found last year that Precise and Kensington were even charged with a deposit of 25% over 2.5%. This is almost twice as much as the post office with 1.33% for a two-year fix.
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