Mortgages for Self-Employed People: Tips for Securing Your Dream Home
Securing a mortgage can be challenging for anyone, but if you're self-employed, the process can feel even more daunting. Lenders often view self-employed applicants as higher risk due to the variability of their income. However, with the right preparation and understanding of the process, getting a mortgage as a self-employed person is entirely pos
Here’s what you need to know:
1. Proving Your Income: One of the biggest hurdles for self-employed individuals is proving consistent income. Unlike salaried employees who can easily provide pay stubs, self-employed borrowers need to demonstrate their income through other means. Most lenders will require at least two years of accounts or tax returns to assess your earnings stability. Having well-documented and professionally prepared accounts can make a significant difference in your application’s success.
2. Keep Your Financial Records in Order: Lenders will scrutinise your financial history closely, so it’s essential to keep meticulous records. This includes your tax returns, profit and loss statements, balance sheets, and any other relevant documentation. The more organized and transparent your finances are, the easier it will be to satisfy lender requirements. Consider working with an accountant to ensure your records are in top shape.
3. Consider Your Business Structure: The way your business is structured can impact your mortgage application. For example, if you're a sole trader, lenders will typically look at your net profit. If you operate as a limited company, they might consider your salary and dividends. Understanding how your business structure affects your mortgage prospects can help you present your income in the most favorable light.
4. Deposit Requirements: As a self-employed borrower, you might face stricter lending criteria, including the need for a larger deposit. While a 10% deposit might suffice for traditional employees, self-employed applicants may need to put down 15% to 20% to reassure lenders. A larger deposit not only improves your chances of approval but can also help you secure a better interest rate.
5. Improve Your Credit Score: Just like any other borrower, your credit score plays a crucial role in your mortgage application. A strong credit score can help offset the perceived risk of being self-employed. To improve your score, make sure to pay your bills on time, reduce outstanding debt, and avoid taking on new credit in the months leading up to your mortgage application.
6. Work with a Specialist Mortgage Broker: Navigating the mortgage process as a self-employed individual can be complex, but you don’t have to do it alone. A mortgage broker who specializes in self-employed clients can be invaluable. They can help you find lenders who understand the nuances of self-employed income, guide you through the application process, and increase your chances of securing a favorable mortgage deal.
7. Consider Your Timing: Timing can be critical when applying for a mortgage as a self-employed person. Lenders prefer to see stable and consistent income over time, so if your business has been through a rough patch, it might be wise to wait until your finances have stabilized before applying. Demonstrating growth and stability in your business can make a significant difference in your application’s success.
In conclusion, while getting a mortgage as a self-employed person can present unique challenges, it’s entirely achievable with the right preparation and support. By keeping your financial records in order, understanding your business structure, and working with a specialist broker, you can improve your chances of securing a mortgage and moving into your dream home.
If you’re self employed & would like more information or advise on mortgages, or you’d like to book a free mortgage advise appointment with our Mortgage Broker James please get in touch
Call us on 01777 808777
Email us at james@nc-fs.co.uk
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