So, you’re self-employed and eyeing that dream property. But hold up – navigating the world of mortgages can be a bit trickier when you’re your own boss. Fear not, though, because getting a mortgage as a self-employed individual is entirely possible. Let’s break it down for you.
Self-Employed Mortgages: Yes, They’re a Thing!
First off, let’s debunk a common myth: yes, you can indeed get a mortgage if you’re self-employed. Whether you’re a freelancer, sole trader, company director, or contractor, you’re eligible to snag that mortgage you need to secure your dream home.
But here’s the kicker: the process may differ a bit from what you’re used to. Gone are the days of self-certification mortgages – now, you’ll need to provide solid proof of your income. Many lenders prefer to see at least two years’ worth of income history, but don’t fret if you’re a newbie on the self-employment scene – you can still make it happen.
Self-Employed Mortgages Demystified
You might be wondering, “What’s the deal with self-employed mortgages anyway?” Well, here’s the lowdown: while there isn’t a specific mortgage category labeled “self-employed,” lenders do approach applications from self-employed individuals differently. Expect stricter assessment criteria, and you’ll need to provide more paperwork than your employed friends!
The Lowdown on Limited Company Owners
Now, if you’re a limited company director, you might be scratching your head wondering how this all applies to you. Here’s the scoop: even though you’re technically an employee of your own business for tax purposes, lenders often view limited company directors as self-employed individuals – especially if you own a significant stake in the business, usually more than 20%
Income Matters: What Lenders Look For
When it comes to income assessment, lenders consider different factors depending on your employment status:
Self-Employed Income: Lenders typically look at the net profit figure from your business accounts, reflecting both your business’s profitability and your personal earnings.
Limited Company Directors: If you’re a director with a 20% shareholding or more, lenders assess your affordability using a combination of salary, dividends, or salary and net profit averaged over the last two years.
Crunching the Numbers: How Lenders Assess Your Borrowing Capacity
Once lenders have a handle on your income, they’ll crunch the numbers to determine your borrowing capacity. This involves:
Total Income Calculation: Summing up your various income sources and applying appropriate percentages.
Debt-to-Income Ratio: Ensuring that your total debt payments don’t exceed a certain percentage of your income.
Stress Testing: Evaluating your ability to manage mortgage repayments under different financial scenarios.
Affordability Assessment: Based on income and stress testing results, determining the maximum loan amount you can afford.
What About Bad Credit?
Got a less-than-perfect credit history? Don’t sweat it – many lenders do consider applicants with bad credit. Just be sure to seek out these specialised lenders, or consider remortgaging if you’re already a homeowner.
In a nutshell, while navigating self-employed mortgages might seem daunting, having a mortgage broker by your side can make the process a breeze. At Key To Mortgages, we’re here to offer expert advice tailored to your needs and guide you through the mortgage maze. So, whether you’re based in Bournemouth, Christchurch, Poole or beyond reach out to us today for personalised assistance and expert guidance. Your dream home awaits!
Your home may be repossessed if you do not keep up repayments on your mortgage.
We offer a free initial mortgage consultation. There may be a fee for arranging your mortgage and the precise amount will depend on your circumstances. We typically charge a fee of £595.00.