Read on below for a guest post from our good friends at contractor mortgage specialists CMME:
Becoming self-employed isn’t always for everyone. It’s a decision that can have consequences. You may feel alone in your journey when it comes to financial advice, especially when your high street bank doesn’t understand the way in which you work when applying for a mortgage – something that can hinder your opportunity.
It’s a common myth that the self-employed will be declined a mortgage or would need to have been self-employed for 2 to 3 years. This isn’t necessarily true and, with support and guidance from the right specialist mortgage broker, you could get a mortgage that reflects your true earnings.
Whether you’re a first-time buyer or a professional looking to re-mortgage, CMME have created this helpful guide outlining everything self-employed people need to know about getting a mortgage.
Preparing to apply for a self-employed mortgage is key
In recent years, as more people than ever before are working for themselves, there has been a huge demand for specialist mortgages for self-employed professionals.
A number of banks are happy to offer a self-employed mortgage. However, before agreeing to lend you money, they need to be sure that you are in a position to make the repayments.
With this in mind, you will be asked to provide 1-3 years of accounts prepared by a chartered or certified accountant, SA302 tax calculation forms, and 3 months of your business’ bank statements.
Different banks have different lending criteria, so it’s definitely worth checking what you will need to provide in advance so that you can ensure that you are prepared.
Some banks and building societies may also want to look at your credit report, so make sure you check it and ensure that there are no issues before applying for a mortgage.
Getting your deposit
Whether you’re self-employed or ‘traditionally’ employed, the same rules when it comes to getting together a deposit.
For example, you will need to contribute at least 5% of the property’s value. However, if you can get together a 10% deposit you will be able to access mortgages with better interest rates.
You should also be aware that there are different mortgages for different company types, and you will be expected to provide different forms of evidence tailored to the circumstances during the application process.
Limited Company Mortgage
If you operate a limited company and you’re applying for a mortgage, lenders will consider both your salary and dividends, which make up your salary.
Some lenders even take into account your operating or net profit.
Sole Trader Mortgage
If you are applying for a sole trader mortgage, you will need to present at least 1 year’s trading history. However, lenders tend to look more favourably on applicants with a longer history.
Your share of the profits will be considered when applying for a partnership mortgage.
How much can you borrow?
Unlike in the past, when lenders would multiply your total income by 3, 4 or 5 to determine how much you can borrow, today banks use complex methods to establish how much you can safely borrow.
To reach a decision, your lender will look closely at your income and current expenditure.
So before applying for a mortgage, make sure that all of your accounts are in order and you have everything that you will need.