Getting a Mortgage When You’re Self-Employed
Mortgage advice and support for the self-employed
CMME specialises in mortgages, remortgages, and buy to let advice for self-employed individuals no matter how complex their income.
As a self-employed individual, you are often expected to ensure that the running of your business, personal life and finances are all looked after. You will also likely find that when applying for borrowing, such as a mortgage, you don’t always tick all the boxes set out by financial institutions.
A mortgage is likely to be the biggest financial commitment that you will ever enter into, which is why you should have everything you need to make the process as simple and stress-free as possible; whether that is applying for a new mortgage as a first-time buyer or renewing your current mortgage deal.
Before arranging your mortgage there are many questions that you will want answered, such as:
- How much can I realistically afford?
- What type of mortgage should I choose?
- How does the process work?
- What obstacles am I likely to come across as a contractor?
If you have been working as a contractor for a long time, lenders will often average out the income you’ve earned over recent years to estimate your average income. They will then use this average to work out how much you can afford to repay each month.
Generally, you may be able to borrow up to 5X your annual earnings when applying for a mortgage, but this may differ from lender to lender.
Preparing for your Self-Employed Mortgage
Lenders want to ensure that they are able to provide a wide range of mortgage products to suit most people’s needs where possible; it’s worth remembering that as you head into your application. Before they agree to lend you money, lenders will want to see evidence of your income and your finances in general.
Now, if you have a traditional job, with a salary and a monthly pay cheque, your income is easier to prove. You would simply show the bank your pay slips and copies of your bank statements, and the lender would calculate the maximum amount you could borrow as well as affordability checks.
For self-employed people, the challenge is slightly more difficult, and you may need to take steps to prepare your accounts and documentation, so it meets the lender’s criteria,It’s important to note that different lenders have different lending criteria; with some lenders requesting more years of accounts or other evidence of your income.
Lenders typically ask to see:
- Accounts: 3 years of accounts, prepared (and signed) by a chartered or certified accountant
- SA302: Last 3 years of your SA302 tax calculation forms (or online equivalents)
- Bank statements: 3 months of your business bank statements, if applicable
5 Tips for Getting your Mortgage Ready in 2021
1) Improve your credit score
All lenders will assess your credit worthiness when applying for a mortgage and generally they a credit report is where this information is held for you to view.
Here are some quick tips for improving your credit score:
- Register on the electoral roll
- Check for any errors and have them removed
- Pay off existing debt
- Don’t do lots of credit checks
- Pay your bills on time, don’t miss payments
Try an app like Credit Karma for keeping track and finding tips for improving your credit score.
2) Decide on your budget
In light of Coronavirus, many lenders have reduced the availability of high Loan-To-Value (LTV) mortgages meaning that you will often require a higher deposit than you may have previously, somewhere in the 10-15% range is more prevalent than a 5% in the current climate.
Having a higher deposit will likely mean that you are able to get a lower rate and lend less. To access the most competitive rates you should be aiming to save anything between 10 and 25%. There are mortgage options available for less deposit than that, but they will be on a much higher rate.
CMME have a Q&A answering everything you need to know about deposits, check it out here.
3) Get your paperwork sorted
Many mainstream lenders and brokers will ask for a variety of paperwork and information from you.
You will need to obtain a copy of your current contract, as this will be used to demonstrate your earnings.
Speaking to a broker can help you understand this further and will ensure that the paperwork is positioned in the best light when approaching a lender.
4) Investigate the market
Before you start your mortgage process, it’s a good idea to have a look at the market – investigate what type of mortgage may be suitable for your needs, what area would suit you and the costs associated with arranging your new mortgage and buying the property.
The current mortgage rates are at an all-time low, which may also mean more “lower” options available.
Whether this is your first mortgage or your fifteenth, preparing in advance can help make sure your goals are realistic and achievable.
5) Speak to a specialist
The truth is that most lenders have little understanding about the contracting market, and as a result, their standardised procedures do not accommodate contractors.
That’s why we have teamed up with our partner CMME, who are experts in dealing with complex incomes, to offer a free no-obligation initial consultation to discuss your potential mortgage plans.
CMME have agreed bespoke underwriting agreements with a comprehensive range of lenders; enabling us to secure mortgage funding based on a multiple of your contract rate alone.
At CMME, we specialise in mortgages, remortgages, and buy-to-let arrangements for contractors and self-employed indivdiauls, so don’t hesitate to get in touch with us for bespoke advice or visit CMME for more information.