Self-Employed? Keys to Getting Approved for a Mortgage and Buying a Home
Getting a mortgage today is harder than it has been for some time, and if you’re looking for self-employed mortgages, then it can be even tougher.
In recent years, banks have become more cautious about who they lend money to. This is particularly evident when it comes to mortgages. Even for those employed in a full-time job, getting a mortgage offer is not as straight forward as it once was.
Mortgages for the self-employed therefore can be quite challenging, though far from impossible. There are steps you can take before applying for your mortgage that will give you a much better chance of being approved, and when armed with this information ahead of submitting your application, things can become a great deal easier.
Tips for getting approved for self-employed mortgages
As with a lot of things in business, being approved for contractor mortgages or self-employed mortgages is largely down to preparation and planning. You need to ensure you give yourself as much chance of being approved as possible, in short being able to demonstrate to your mortgage lender that you’re a safe investment.
Using a professional accountant
Whether you’re a sole trader, a limited company or a partnership, one thing that is going to be crucial when applying for a mortgage is to have at least two years of income information available. Using a professional accountant to prepare your business finances can be seen by sole traders as an unnecessary cost, but having these clear indications of income available – and being able to explain any dips in your income during that period – can go a long way to showing a lender that you’re less of a risk.
If you’re a sole trader and decide against using an accountant, then at the very least be prepared with your SA302 from HMRC – this shows how much income you received and how much tax was due. Partnerships should use an accountant for help in clearly identifying what proportion of business income is attributable to you.
Keep business and personal finances separate
Where possible, it’s advisable to keep your business and personal finances separate as this can benefit you when it comes to mortgage applications. If you have a credit card that has been taken out for use solely with your self-employed business, then ensure the card is in the name of your business. This way, it will help protect your personal credit rating if you are unable to pay your balance off when due.
Make your salary clear to a mortgage lender
When applying for a self-employment mortgage, it’s important to clearly identify what your income is. When self-employed, taxes will often be organised in a way to reduce the amount of tax you pay each year. This may mean that you pay yourself a low salary and top this up by paying out of company profits, or a dividend.
You need to make sure that this is clearly defined for the mortgage lender, otherwise they may see your initial salary as being too low to approve for the mortgage you have applied for.