How To Get A Mortgage If You’re Self Employed
If you work for yourself, it can be tricky to get a mortgage. Freelancers, contractors and the self-employed are finding it hard to get approved, but in this guide, we can help locate the mortgage that is right for you.
Where To Go For The Best Mortgage Deal
One of the best tools available for self-employed people is a mortgage broker. They can help you get the best possible rates and chances of obtaining a mortgage based on your circumstances. Most self-employed who have been turned down by the large banks can get a mortgage from a mortgage broker.
The Effects Your Company/Employment Setup Can Have
How you setup your business is up to you, but this can have an impact on how lenders can view your income
If you are a sole trader, you are responsible for keeping your accounts. Often sole traders will complete what’s called a self-assessment when doing tax returns with the HMRC. Once you complete this, you will get an SA302 form which is a breakdown of your received income and tax due. The lender may require this for your application
If you are in a partnership lenders will want to see every partner share of the profits and how the business is structured. This will enable lenders to get a clear idea of how much you make.
Owning and running a limited company means your business and personal accounts are kept separate. A limited company will have a minimum of 1 director who pays themselves a set basic salary. This can be increased through dividend payments which are post tax money awards from the company and paid to the director.
What Information You Need To Get A Mortgage
To prove your income, you will need to provide a minimum of 2 years accounts or tax returns tho if you have more it will work in your favor.
You will need the following
- 2 Years sets of accounts or tax returns with your SA302
- If you have no growth in your company from the previous two years is shown, you may need 3+ years worth of accounts.
- A Good credit history.
- A large deposit, typically 10% or more.
Lenders will determine how much you can borrow based on your profit for the past few years. If your most recent year’s tax return is less than the previous years, you will need to provide more than two years accounts. Lenders will want to see growth, and a string of declining profits is not a good sign. Make sure your accounts are filled up to date. Any figured which are out of date won’t look good.
Having a large deposit will help secure your mortgage. By reducing the LVT or Long To Value by fronting more deposit will also mean less risk for the lender and also sure you might be good with money management.
Your credit file will also need to be in good standing. Default or late payments won’t help secure a mortgage as it adds risk and lenders hate risk. Obtain your credit report and fix any errors. Repay any unpaid or late debt. If you do have any bad marks on your credit report wait at least six months before applying for a mortgage.
You Need To Prove How Much You Earn
To be in with a shot at getting a good mortgage, you will need to provide at least two years worth of accounts. Ideally, these should be provided by a chartered accountant but is not always necessary tho lenders do like to see accounts from chartered accounts to prove they are accurate.
Make sure you understand your accounts. If the lenders ask you to explain any figures, it will look good if you can accurately explain the information provided to them. If for any reasons you have a lower income than last year, being able to explain why without getting flustered will look more impressive.
Common problems you may face when proving your income are likely to be the figured in your accounts. If you use an accountant, then they will probably have helped you to lower your tax bill. While this is good in the short term when applying for a mortgage it can have an adverse effect as in theory you will earn less which will mean you can afford less.
You should seek advice from your accountant and possibly a mortgage broker before you apply