Securing a Mortgage When You Are Self-Employed
Buying a home is a wonderful thing. It’s exciting and a chance to start a new life, while making your house a home, instead of making the best of rentals. It’s also an excellent financial opportunity. Getting your foot on the property ladder means that you’ve got a valuable asset. Even while paying off your mortgage, you own your home. It’s there if you need it and it will one day give you the chance to make further investments, retire comfortably and have something to leave your family when you are gone. It can improve both your lifestyle and your financial situation massively.
But, it’s not always easy. Over the last ten years or so banks have been much more reluctant to lend, and house prices have risen dramatically. This means that you need a large deposit and an excellent financial outlook to stand a chance. If you’re self-employed like I am, it can be even harder. Even though more of us than ever are working for ourselves or as freelancers, banks worry about the lack of guaranteed income and job security. They see you as high risk when it comes to borrowing such a large amount of money. But, it’s by no means impossible and is still something that you can aspire too. Here are some tips to help you along the way.
Do Your Research
If you want to buy a house, it’s important that you know what to expect and exactly how much money you will need. This will help you to get your finances in order and prepare for seeing a mortgage advisor. Look into surveyors in your area, a solicitors fees for buying a house calculator, stamp duty tax and other associated costs so that you know how much you need to save on top of your deposit. As well as looking at house prices where you want to buy to get an idea of what you might be able to afford.
As a self-employed person, the best way to improve your chances of getting a mortgage is saving a large deposit so that you are asking to borrow less. Ideally, you want the loan to value ratio to be over 20%, but the more, the better.
Of course, not spending helps you to save. But, it also makes your bank statement look better. Lenders want to see that you are capable of living within your means and that you can save when you need to. They want to know that you are sensible with money. So, set up a household budget and stick to it. You might want to put some money in a PayPal account for splurges and emergencies so that it just shows as one transaction on your statement.
Organise Your Documents
When an employee goes to see a mortgage advisor or lender, they have to show three months’ worth of payslips and bank statements. When you’re self-employed, that becomes 12 months. Make sure you’ve got a year’s worth of statements printed out and ready, as well as your last two sa302 forms. Some lenders accept printouts, but others require originals so check with yours. If you haven’t yet completed two tax returns, it will be harder, but you can have an accountant certify your invoices and accounts up to this point.
This is a collaborative post.