Getting a Mortgage When You're Self-Employed
Starting your own business can have a number of different benefits, including giving yourself a better work /life balance, the chance to be our own boss and even the prospect of not having to commute to work each day.
The Traditional Mortgage Route
Yet when it comes to obtaining a mortgage, the options for self-employed people are somewhat limited.Banks and mortgage lenders like to keep things simple – they favour customers who receive a regular salary each month.
Normally when you apply for a mortgage, the lender asks you to provide copies of your salary slips, to prove that you receive a regular income.
Of course for self-employed people this may not be so simple.
Mortgage Application Requirements
If you are self-employed, you will usually be expected to show three years' accounts of your earnings.If that is not possible, perhaps because you have only recently began trading, then the lender may be willing to accept a letter from your accountant that proves your level of earnings.
However, a common problem for the self-employed is that their accounts often understate your earnings, as a way to minimise your expenses and reduce the level of tax you are required to pay.
This could reduce the amount of money that you are able to borrow.
But there are mortgage options if you are self-employed, the trick is knowing where to look.
Self-Certification Mortgages
Self-certification mortgages are available for people who cannot verify their income.This means that to obtain a loan, the borrower submits on their application form an earnings figure that they do not have to prove with salary slips or details from accountants.
Because you are asking the mortgage lender to provide the loan without any proof of your earnings, the lender will charge a higher fee for the loan, and a greater rate of interest.
You should also bear in mind that it is a criminal offence to lie about your level of income on the mortgage application.
Flexible Mortgages
Once you have obtained a mortgage, you can think about the best way to repay your mortgage debt.Flexible mortgages are very useful for self-employed people because they give you the option to overpay or underpay, depending on your circumstances.
If you have irregular earnings, for example you make more money at certain times of the year and less at other times, then you can take payment holidays on your mortgage during quite periods.
When your earnings are at a higher level, you can arrange to make overpayments that will help to reduce the term of your mortgage.
Overpayments are credited into your accounts straight away, which means that you are working to reduce the level of interest on the amount you owe.
Independent Financial Advice
Whatever your circumstances, if you are self-employed an independent financial adviser (IFA) should be able to help you find the right mortgage.An IFA will be able to explain the various options open to you, provide you with advice on how much you will be able to borrow, and make sure that you take the necessary steps to get a mortgage agreed with a lender.
