4 Things to Remember When Applying for a Mortgage When You’re Self-Employed
One of the most difficult parts of getting onto the property ladder is finding the right mortgage product for you. It seems that self-employed people are unfairly penalised when it comes to applying for a mortgage. Even if you’re running your own business or a freelancer, your income can be less predictable than a salary. This means that mortgage lenders need the reassurance you can afford the monthly repayments. So what does it really take to get a mortgage when you’re self-employed?
Remember, There Is No Such Thing as a “Self-employed Mortgage”
While there are so many different mortgage products, there isn’t one purely for the self-employed, and they will have the same choice of mortgages as anybody on a salary. However, it’s important to make sure you get yourself into a good financial position. The many mortgage guides out there provide information for self-employed people, but this doesn’t relate specifically to a self-employed mortgage, as they don’t exist.
What Does It Take to Get Yourself Into a Good Financial Position?
In most cases, you will need to provide two years of self-employed accounts, and an accountant can help you to make sure it meets the required standards. Most lenders will ask for what is called an SA302 form, which is a confirmation from the HMRC of the income reported by you or your accountant. In the run-up to applying, make sure you have enough account years. There are mortgage lenders who lend to people with one year of accounts, but if you can hang on for longer, while your self-employed earnings creep up, this will be better.
Get a Broker
A broker will be the most important part of the process for self-employed individuals. Many self-employed people find it difficult, but if they apply with someone that’s fully employed, the employed person’s funds are taken into account before tax, but the self-employed person’s is accounted for after tax, which can be a massive difference. While you can put a lot of expenses on your self-employed tax return for the purposes of applying for a mortgage, you may want to minimise your expenses. If you run a business paying yourself the higher dividend of the profits can work wonders for your application, and it will enhance your savings so you can get a larger deposit. A broker can help you with this but make sure they are a Whole of Market broker so they can anticipate any potential pitfalls of a self-employed individual.
Do What You Can to Save a Bigger Deposit
One of the age-old pieces of wisdom when it comes to applying for a mortgage is saving more of your deposit upfront which will help to reduce your mortgage repayments and can increase your financial security in the long run. Lenders will have different criteria, but if they can see you’ve got more than a 10% deposit, this may take a lot of time to get in place but will make a massive difference in the long run. Being self-employed should not be an obstacle to getting a mortgage but it certainly feels like it sometimes. Get yourself ready for the process and it will make everything far smoother.
