Are you self-employed? Wondering what you can do to improve your chances in getting a mortgage?
A lot of people believe that lenders will only be interested in the numbers when it comes to approving a mortgage when you are self-employed. Reality is, lenders will look at lots of different factors.
To stand the best chance of getting a mortgage approved follow the tips below –
Speak to a professional
Speaking to a mortgage broker that has built a relationship with lenders that are willing to look at self-employed – is priceless. Not all lenders have the same criteria – a broker will ensure you are matched with the most suitable lender. Mortgage Squared have helped many self-employed people get the right mortgage that fits their needs.
Ensure you’re on the electoral roll
Check with your local council, this will help with the credit score.
Check your credit file
Checking for any adverse credit is a must when your self-employed. You may not even be aware of missed payments etc so it is always advised you get up close and personal with your credit file. Your credit file determines what products the lenders can offer you and also the rate and mortgage deals that are available to you.
Check your accounts
Make sure your accounts are all up to date. To have the most competitive deals you need to be on top of all your payments making sure they are paid on time.
Enlist an accountant
We understand that being self-employed the accounts can be a little more challenging so get yourself an accountant. Most lenders require that your accounts are drawn up or approved by a chartered certified accountant. It is always best practise to get an accountant to go over your accounts.
Be aware of your credit foot print
Making multiply applications for credit at the same time as applying for a mortgage can complicate the process. Be aware if using comparison sites for insurance they will run multiple checks which could affect your credit history. Again, we understand when you your self-employed being able to get credit is important but be wary of applying multiply times.
Keep on top of your credit card balance
The higher the % usage of your credit card will result in a lower credit score. Don’t allow your credit card to reach its limit. Maybe look at spreading the outstanding balances over two cards.
Try to keep up with substantial payments
If you are only paying off the minimum payments this could suggest to lenders you are struggling with managing credit.
Stay away from payday loans
These can be an easy fix for self-employed people but stay away. Payday loans do not paint a good picture of your finances, and lenders will often read this as you being in financial difficulty. Many lenders will simply decline to lend if there is a recent record of payday loans.
Evidence your deposit in a timely manner
Having your deposit all ready and waiting will show willingness. This can be especially true when other people are gifting you the deposit. It is always best to sort this out ahead of time.
If using business funds, speak to your accountant
Taking regular withdrawals can lead to smoother underwriting rather than taking a large lump sum in one go. When taking a large lump sum the lender may ask the accountant to confirm this will not be detrimental to the business, causing an extra delay in the process.
Get yourself an agreement in principle
This will confirm the maximum loan to give you peace of mind that you are looking at properties within your budget. It’s also a good indication that your credit is in order.
Get your documents in order
We list these below –
Make sure you have valid photographic ID. If you present your driving licence, make sure it has your current address on it.
Proof of Address
A council tax, utility bill or financial statement will suffice. If everything is online, you should change one of your accounts to postal statements.
If you have a permanent role as well alongside your self-employment you’ll need to gather three to six months’ pay slips and P60s. If you’ve received extra income such as bonuses or commission, some lenders may require two years worth of P60s.
Limited company accounts
If you’re a limited company director then the last two years’ worth of fully signed-off accounts is required in most cases. Though some lenders will accept just one year’s accounts. The latest accounts cannot usually be over 18 months old, so try to finalise the latest year’s as soon as possible.
Personal Tax Returns
Self-employed workers need to request three years SA302s and a tax overview from HMRC.
You’ll need the last 12 months of contracts, fully signed by all parties. These need to clearly show your day-rate and have been paid in sterling, with an expiry date ideally included on each contract. Obviously, not all contracts have an end date, some go day-to-day, so rolling contracts can be accepted.
CIS or Umbrella contractors/workers
Six months’ worth of pay slips are required.
These can include postal or downloaded versions of the last three months’ salary fed bank statements, three months business bank statements and three months bank statements showing rental payments.
You need to provide a statement showing funds held, and a build-up of funds. If funds are a gift from a family member, you need a statement letter from them confirming they have funds or that they have been transferred to you.
If you have buy-to-let properties as a source of income then a Tenancy Agreement and three months bank statements to evidence rent will be needed.
Life insurance or other protection
Lenders will usually need to see evidence of any Life Insurance you have in place to cover the mortgage. This usually means they just need to see a copy of the policy summary.
Common problems with self-employed mortgages
The most common problem for a self-employed person applying for a mortgage is only having 1 year of accounts. Many lenders will require two or three years of accounts. Any huge increases or uneven income over recent years can prove to be problematic. Lenders will often average out the last two or three years. However, we have access to the full range of mortgage lenders so if you only have one year’s accounts or have seen a big increase in the latest years we have a lender to help.
Generally speaking the more years of records you can provide, the better it is. If you can show a consistent or increasing profit over a number of years, this will help your application. Lenders look at average profits over a period of time to assess your risk profile. If your income tends to vary dramatically from year to year, you might need to show proof of your of future income potential. This could include new clients or contracts, or you may be asked to prove that you have a significant amount of savings.
Speak to our mortgage brokers first, to see what your best approach is when it comes to dealing with mortgage lenders and we can help you find the best rate out there.
Simply call 08081 551 807 or request a call back today https://www.mortgagesquared.co.uk/callback/