Proving your earnings to lenders when you are self-employed in order to obtain a mortgage can be a slightly more daunting task than applying for a mortgage as an employee, but with planning, organisation and help from the experts you can secure deals and repayment rates as competitive as those your employed friends and family are offered. Here are a few tips to get you on track and help make your home-owning dreams a reality.
When to apply
Waiting until your new self-employed business is financially stable will give you the best chance of convincing lenders you are in a good enough financial position to borrow. Wait until you’ve been self-employed for at least one year before applying, though remember some lenders will want to see at least three years’ worth of accounts. The longer you have been self-employed and the more year’s earnings you can evidence, the better, but don’t discount your chances if you became your own boss more recently, there are still deals to be found.
Accounting & Records
Depending on the size of your business, it might be worth having your accounts prepared by a chartered or certified accountant – something that many lenders prefer to see when a mortgage application comes in. If your business is on the smaller side, it may be enough to keep accounts yourself as long as these are as detailed as possible and that you have a record of all the income you
have reported to the HMRC as well as the tax you’ve paid.
Evidence your income
As you don’t have an employer to vouch for your earnings, prepare to present more paperwork to lenders than those who are in full-time permanent positions. The more evidence you can supply of your earnings, the better, especially if you are a contractor or freelancer and the source of your income changes often. Aim to give evidence of regular work and provide proof of any future commissions you have coming up.
Save as much as you can to put towards your deposit! Starting to save well in advance of applying for a mortgage will help you approach lenders with a bigger lump sum, helping you to secure the mortgage you are after and have better monthly repayment rates too.
Improve your credit rating
During the period of time you are saving, making efforts to improve your credit rating also won’t go amiss. You can check your credit rating for free via various websites such as Experian and CheckMyFile. See where any problem areas might be, of course settle any debts. Paying bills on time and using and paying credit cards regularly and on time can all help to boost your rating too.
Employ a mortgage advisor
As you do have slightly more to prove and organise before heading into the nearest bank, it’s helpful to have an expert on board who can guide you through the process, especially if more recently self-employed. Consult an independent mortgage advisor who has access to specialist lenders who are more generous to self-employed borrowers. A mortgage advisor can work with you to get you on the right path and can advise whether the time is right or not for you to apply, as well as knowing the best deals out there for your circumstances.