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Self employed? Here’s how to get a mortgage

Self employed? Here’s how to get a mortgage
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Are you a business owner looking to get a mortgage? Or are you a sole trader or contractor who is not sure how to go about getting your first home loan? While the process of getting a mortgage when you are self-employed can be challenging, it’s not impossible. We’re here to guide you through everything you need to know – from what paperwork to provide to top tips for improving your chances on being approved.

Who is classed as self-employed?

You are self-employed if you own more than 20% to 25% of a business from which you earn your main income. So this could come in many different forms. You could be a sole trader, a company director or a contractor. And when it comes to getting a mortgage, there are certain hoops you will need to jump through.

Since self-certified mortgages were banned in 2014, there are no longer specific mortgages for business owners/self-employed workers. In theory, you have access to the same mortgages as everyone else. But as there is no employer to vouch for you, you will need to provide a bit more evidence for your application to be successful.

What evidence do self-employed applicants need to provide?

As a business owner/self-employed worker applying for a mortgage, you need to to provide evidence of income to your lender. This includes the following:

Sole trader

If you are a sole trader, you will need to provide your SA302 forms for the past two or three years. These are your personal tax returns from HMRC, which will show the total income you have received and the total tax due. From this the lender can assess your income. You will also need to provide two or more years of certified accounts.

Contractor

If you are a contractor, as well as two or more years of certified accounts, lenders will want to see records of the last 12 months of contracts. You’ll also need any evidence of upcoming contracts.

Company director

As a company director, you will need to show two or more years of certified accounts. In addition to this, lenders will want to see evidence of dividend payments or retained profits.

Other documentation

Regardless of what type of business owner you are, when it comes to applying for a mortgage, you will most likely have to provide the following documentation to the lender:

  • Passport
  • Driving licence
  • Council tax bill
  • Utility bill within three months
  • Six months’ worth of bank statements

As part of the affordability test, lenders also tend to look at your outgoings as well as your income. So you may find the lender will also want to look at your bank statements to see how much you spend on bills.

What can you do to improve your chances of being approved?

While applying for a mortgage as a business owner or a self-employed worker may seem daunting, there are some things you can do to help the process along.

Consider using a broker

Not all lenders have the same criteria. So what a broker can do for you is match you to a lender which is more likely to consider an application from someone who is self-employed.

Use an accountant

Lenders prefer applicants to provide accounts that have been prepared by a qualified chartered accountant. By doing this, you prove your reliability. And you can rest easy knowing that your accounts are correct and up to date.

Additionally, if you are a business owner using business funds, then instructing your accountant to make regular withdrawals will smooth the whole mortgage application process. If you were to withdraw one large sum, you may find that a lender could question whether or not this would be detrimental to the business.

Check your credit file

One of the biggest pieces of the puzzle when it comes to mortgage applications is your credit score. Whether or not you are a business owner, if you have a poor credit score you may struggle to get a mortgage.

So before you make your application, check your credit file to see if there are any problems with it. You can check your credit score with Experian, TransUnion or Equifax.

Have all your documentation ready

The main issue self-employed workers have when applying for a mortgage is proving they can afford the loan. The main thing you can do to improve your chances of being approved for a home loan is to get all of your documents in order before making your application.

Making sure you have the required number of years of accounts or personal tax returns can make a big difference.

Find out more

For more information on mortgages, check out MyWalletHero’s complete guide to mortgages.

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