Being self-employed can sometimes seem like a handicap when it comes to getting a mortgage as you don’t have as reliable income as those with a consistent established one every month. However, it is not as difficult as it may initially seem and there are options available. The main thing to remember is every case is different, and yours is entirely unique to you, thus you should always make decisions based on your own circumstance and finances. These are some tips to help you make the most informed decision and help you get prepared for applying for your own mortgage when self-employed.
Know your business type
The first thing you need to understand is what category of self-employed you fit into. There are a few: sole trader, partners, limited companies, contractor, and freelancer. Having a grasp on this will help you work out which lender is right for you, as they have different criteria and ways of working out how much you can borrow based on your business setup.
How long do you need to be self-employed to be approved?
Ideally, the best time to wait before you apply for a mortgage when you’re self-employed is two years. This provides enough proof to the lender that you have a reliable source of income, and you are committed to your field of work. It is still possible to get a mortgage after only a year, but it does limit your options and you will need the help of a broker to find you a lender.
Proving your income
We’ve touched on this but now it’s time to really get into it. The main and most important part of securing a mortgage is proof of income. Usually, it is only required to provide two months of payslips, but as self-employed mortgage seekers don’t typically have payslips, you are required to provide six months’ worth of invoices and bank statements, sometimes even twelve months, as proof of your financial reliability. If you work with a consistent day rate and have an up-to-date work history, lenders may be willing to make a basis of your loan off that information. The same with those with contracted work; if you’re able to show a copy of your current contract, it could add weight to your application. Personal tax returns will also help immensely, so be sure you are able to provide them for at least two years, sometimes three.
Future income
Be prepared to be questioned about your future income and plans for your self-employment. It’s best to go into your meeting with your lender with a realised, and more importantly realistic, plan for the next few years. To prepare for this, consider how lenders assess income and what they include in their calculation and apply that to your situation. It is always best to be honest and forthright, so you are not getting into an agreement that won’t be suitable for you in a few years.
It is entirely possible for those that are self-employed to secure a mortgage and often easier than you might have anticipated. If you would like to find out more, discover how much you could borrow and which lenders are right for you, get in touch or stop by one of our offices any time. We are always ready with friendly specialist advice.