If you are self-employed, you might think that you will have a hard time finding a mortgage, and in many cases, self-employed applicants wrongly assume the process is harder than it actually is. While it is true that mortgage lenders prefer customers who have full-time employment, some lenders cater to partnerships, sole traders and limited company directors. Some even cater to applicants whose businesses have uncommon ownership structures. Additionally, some have different application criteria and considerations for sole traders and limited company owners.
Sole Trader Mortgages: An Overview
Sole trader mortgages, sometimes called self-employed mortgages, are home loan options for anyone self-employed. This can include business owners, contractors, freelancers or anyone without full-time employment. While these types of mortgages are not too different from other types of businesses, some lenders only specialise in mortgages for self-employed applicants.
Before Applying for the Mortgage
To improve the chances of your application being accepted, there are several things you should do. One is being able to prove you have been trading for more than 12 months. Although this increases your options and chances somewhat, some lenders still prefer that you prove you have been trading for more than 24 months, with your chances increasing considerably and the deposit you need reducing the longer you have been trading.
Next, you need to have proof of income. The best way to show you have had an income for the prescribed period is through tax documentation. You will get the documentation once you file your tax returns with HMRC. These documents show the amount of income you declare every year, any other source of income such as property rent, as well as interest from investments and savings.
Some of the requirements when applying for a self-employed mortgage include proof of income as discussed above, deposit, credit history and age.
Deposit requirements for sole trader mortgages are not different from those of other types of mortgages. Expect to pay a deposit that ranges from 5% to 15% as Mortgage Experts Online outline in their sole trader mortgage guide. Mortgage Experts online can help you find the best mortgage lender and they also have mortgage experts standing by to help you if you do not know where to start.
Remember that the higher the deposit you put up, the lower the interest rate will be and the cheaper the mortgage will be overall.
Your credit history can improve or dent your chances of getting a mortgage. Having a strong credit history is preferred because some lenders will turn down your application if they see you have poor credit. That said, some lenders specialise in sole trader mortgages for people with poor credit scores and they are your best option if you find yourself in this situation. Mortgage Experts Online can also help in such cases.
Some providers have an age limit on their sole trader mortgages. Lenders who have such restrictions will usually not offer a mortgage if the repayment period extends past the age of 75. Some even go as far as 85 years but there is no limit to how young you can be to apply for a mortgage. You just have to fit the criteria and show proof of income.
Getting a Mortgage without Proof of Income
Mortgage lenders need to see that you can repay the loan and take on the debt, and the only way you can prove this is by providing proof of income. The only option you have if you do not have proof of income is a second charge mortgage. This is a mortgage borrowed against a property you already own or have equity in.
The best way to explore such options is to talk to a broker who will help you find alternatives that would work for you.
Getting a Mortgage with Poor Credit
Being self-employed severely limits your chances of getting a mortgage and this issue is further compounded if you have poor credit. A broker can introduce you to lenders who specialise in cases of self-employed borrowers with credit history.
Such lenders will often consider your age, severity of your credit history and the reason for the credit issues. These bad credit mortgage lenders will take a broader view of your life and credit history and may offer you a mortgage if you can explain your credit history and if things are not too bad.
Also, be prepared to put down a bigger deposit and for a higher interest rate because lenders will view you as a high-risk customer.
The Amount You Can Borrow
The amount you can borrow will often be a multiple of your average income over several years depending on your specific circumstances. In most cases, you will get a 4 or 5 multiplier, but a 6 is still possible under specific conditions.
While it may seem like it would be harder to get a mortgage when self-employed, that does not have to be the case. Specialist sole trader mortgage lenders exist who are willing to offer you a mortgage if you have proof of income and have been in business for a set period, usually more than 12 or 24 months.