A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
If you want to apply for a mortgage, it is a good idea to plan ahead of time. As a self-employed you would typically need to demonstrate a good track record of business profitability for ideally a period of two years – this may require you to think long term with a 12-24 month horizon when planning for a mortgage. If you have just recently started to trade as a business and do not have a one-year trading history it may not be possible for you to get a mortgage. In addition to the business profitability, you may need to sort out things like overdrafts, deposit amount, or even simpler things like ensuring that your documentation is all up to date with your current address.
In order to make the mortgage process simpler for both you and the lender, it is important that you have all of the necessary paperwork in order. This article will help you with a useful basic check list on what is needed.
Also, if you plan to purchase a property, you would want to get a decision in principle (DIP) sorted out before you start to spend time in property viewings and so on. A DIP and the re-assurance of having spoken to a mortgage broker may spare you from potential disappointment down the line, and can give you the peace of mind with your way forward.
Please remember that a mortgage is a loan secured against your home. Your home may be repossessed if you do not maintain repayments on your mortgage or any other load secured against it. You may have to pay an early repayment charge to your existing lender when you remortgage.
The steps to take in order to find your dream home
- Sort your paper work and speak a broker, to work on a plan for you
- Get a Decision in Principle
- Begin looking at homes that match your criteria and within your property price range
- Make an offer on the home of your dreams
- Work with your mortgage broker who will submit and manage the mortgage application for you, and that will guide you along the process.
The type of paperwork you’ll need to fill out to get a mortgage when self-employed
- Tax documents You will need to have the tax returns from your previous two years, and specifically the Tax Calculations and Tax Overview documents. You can get the pdf files from either your HMRC online account or from your accountant. If you are a director of a limited company, you will also need to provide the company accounts for the last two years, showing your director salary, as well as the company retained profit.
- Contractor If you work as a contractor and are paid a “daily” (or weekly/ monthly) rate you will want to evidence your contract history from anything between the last 12 months to the last 24 months. Speak to a self-employed mortgage advisor to understand what is required (which depends on your circumstances and on the mortgage lender requirements), but it is a good idea to keep copies of the old contracts and to gather them all in one place.
- Three to six months’ worth of bank statements. Lenders will want to see a full account of your incoming and outgoing expenses to make sure that you can afford the mortgage repayments. Applying for a mortgage is essentially the lender’s way of making sure that you’re not taking too much of a risk. For the self-employed lenders will want to review a minimum of 3 month bank statements, and sometime they require 6 month history.
- Deposit. The larger the deposit you can put down on a mortgage, the better terms and conditions you will be able to get. A 5% deposit is possible, but try saving up 10% beforehand for the best chance of getting better product rates. During times of economic recession mortgage lenders tend to become more risk adverse, and they may require even larger percentages in deposits. Your mortgage broker can advice you on the available options at the time you want to apply for the mortgage.
- Other Credit Commitments & overdrafts. If you have incurred a large overdraft or other debts (such as credit cards, personal loans), your affordability will be negatively impacted. If you want to maximise your borrowing potential with a mortgage, you may need to reduce all other debts. This may take time and planning, hence starting 12-24 months before applying for a mortgage may be what you need to do.
- Credit report. Download your credit report, which you can get for free from credit agencies such as Equifax, CheckMyFile, Experian, or TransUnion. Establish all of your debts before meeting with a mortgage lender by getting an up-to-date credit report. This will help you avoid being turned down for a mortgage because of failing to disclose all loans and information.
- Proof of address. You will need a utility bill or council tax bill dated from within the last three months. If you do not have any paper mail with your current address, you will need to contact your utility provider and ask them to post you a paper copy of a recent bill.
If you want to be successful in securing a mortgage as a self-employed individual, the key is preparation.
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Luca BertolinoMortgage Expert
Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.