5 Tips To Get A Mortgage If You’re Self-Employed
The process of applying for a mortgage can be daunting, and in some cases people are put off by myths and rumours, even when they would be potentially eligible. Self-employed people often fall into this category, especially if their income patterns are irregular and they don’t have a three-year accounts history.
However, in many cases the dream of home ownership can be achieved with some specialist mortgage advice. It will be necessary to discuss your plans with a reputable mortgage broker, but there are a few things you can consider beforehand if you are self-employed and thought home buying was beyond your reach. Here are our self employed mortgage tips:
- Save as much deposit as you can. Most mortgage lenders will require a minimum deposit of 10-20%. If you are self-employed and your account history is brief or very variable, a larger deposit will put you in a stronger position to secure a mortgage at a low interest rate.
- Appoint an accountant. You will usually need to provide a minimum of two years of accounts which have been signed off by a certified or chartered accountant. The best scenario is a steady or increasing average profit over a number of years, but evidence of potential new income sources may be acceptable, even if your earnings pattern is uneven.
- Check your credit rating. Make sure you are on the electoral roll as this will help to confirm your identity. If you possibly can, pay off any outstanding debts and don’t take on new ones. Go through your finances and close down any unused subscriptions or dormant direct debits and standing orders, at least one year before you apply for a mortgage.
- Make sure you complete SA302 forms. Most mortgage brokers will request copies of your SA302 forms, dating back two or three years. These forms show your annual tax calculations, and can be printed from your online tax account if you use one. If you submit a paper tax return, you will need to request them from the HMRC.
- Seek the correct mortgage advice. Bear in mind that a rejected mortgage application will potentially damage your credit score, and may even put off future potential lenders. Therefore, it is important to get the correct advice before you make any applications. Research which brokers have particular experience in dealing with self-employed people.
If you are self-employed, and are looking to be approved for a mortgage, it’s also worth knowing that your company type will affect the way you are assessed.
If you are a sole trader or freelancer, you will declare your income in self-assessment returns to the HMRC every April. They will then calculate your tax and issue you with an SA302 form, which states your total income. This information will be used by a mortgage lender to make their mortgage calculations.
If you are in a business partnership, only your individual share of the profits will be assessed. For directors of limited companies, the salary and dividend payments will be taken into account by a mortgage lender. Bear in mind that if you retain the profits in the business, some lenders won’t take them into consideration.