When you’re self-employed, it can sometimes feel like owning your own home will always be out of reach. Working for yourself often means your income varies from month to month, and that can affect your mortgage application. But once you’ve got a steady income, and most importantly, clear records of your incomings and outgoings, you could be on your way to becoming a homeowner. Here’s some handy advice before you start climbing the property ladder.
First, the facts
There’s no such thing as a self-employed mortgage. If you work for yourself, you’re entitled to the same rates as anyone else – you just need to be able to prove you’re earning regularly. When a lender reviews your mortgage application, they’re just assessing how much you earn, and how likely you are to continue to earn this amount. It’s as simple as that.
Proving your income
If you’ve been trading for at least three years, and have two years of business accounts or self assessment tax returns available, then most lenders will consider your mortgage application.
In general, the longer you’ve been self-employed the better – if you can prove you’ve stayed in business for a while, you’re less of a risk for a mortgage lender. Some stricter lenders might want to see future income predictions to make sure you can afford your mortgage repayments.
Another thing that could help reassure mortgage lenders that your income is likely to remain stable is by sharing details about any regular contracts you have. Don’t forget that any outstanding debts you have will also be taken into account, so settle them where you can before applying for a mortgage.
Improving your chances
If you have a good working relationship with your current bank (perhaps you took out a loan with them previously, which you repaid in good time) then this could work in your favour when you’re applying for a mortgage. They know your history with repayments, which should make them more likely to help you than a brand new lender.
The more you have in savings, the better – your application will be dictated by the size of your deposit, so having a healthy sum set aside will increase the odds of your mortgage being approved.
A good credit rating will also boost your chances of getting a mortgage. Lenders won’t just credit check you personally, they’ll also credit check your business via the address registered at Companies House. You can check your credit rating yourself online, just to make sure there aren’t any red flags which could affect your chances with a lender.
How your mortgage is calculated
The amount you can borrow towards the cost of your first home varies from lender to lender. The best way of checking is to do their calculation methods. Some lenders set the amount you can borrow based on your previous few years’ income, whereas others will calculate it based on only your preceding year of trading.
Your self-employment category is also an important factor. If you’re a sole trader, lenders will base their assessment on whether your income has increased or decreased in the past few years. If your income has increased, lenders tend to take an average from the past two or three years. If your income has gone down, they’re usually use the lowest annual income in recent years to make their calculation.
Running a limited company? Then lenders will assess your income by one of two methods. They’ll either base their calculation on your salary and any dividends from the business, or on your salary and your retained profit within the company.
Finding the right deal
You’ll need to shop around and compare mortgages from different providers to find the right one for you. Plenty of patience and access to a price comparison site won’t hurt either. It can take a long time to broker a mortgage, even if you find your dream house on your first visit to an estate agent. You might find it beneficial to meet with a mortgage broker to help you find the right
How ANNA can help
It’s essential to have all your accounts in order before you make a mortgage application. Here’s where ANNA comes in extra handy. ANNA saves all your receipt info and automatically adds it to the right business expense category. So when it comes time to do your tax return, you know exactly what you’ve spent. Try ANNA free for 3 months when you sign up today.
Have you already taken a step up the property ladder, or are you a freelancer looking to buy your first home? Join our Early Birds Facebook group to share your house hunting insights, and find out what ANNA is up to next.