Being self-employed is tough! It typically involves working longer hours, shouldering a colossal amount of responsibility and constant plate spinning – and those are just a few of the typical difficulties entrepreneurs face. To top it all off, the self-employed often struggle when applying for mortgages – according to conventional wisdom, at least.
The truth is that – as with anything in life – preparation is key. Provided they’re earning a reasonable income and also have everything in order before applying, there’s no reason someone who is self-employed cannot just find a mortgage, but a great mortgage with a competitive rate, too!
Here are the five things you’ll need to do if you’re self-employed and looking to buy a property or remortgage:
1. Get your accounts in order
Naturally, before they lend anyone a large amount of money, creditors want to ensure that they’re going to be able to make their payments and that they’ll be able to make them on time. To put it another way, they’re going to want to look at an applicant’s accounts.
As far as self-employed applicants are concerned, lenders will want to see their accounts for the past two years. The majority of creditors will also want these accounts to have been prepared to a high-standard and prefer them to have been prepared by an accountant as a result. In fact, some will not even review any accounts they’re sent unless they’ve been compiled by a chartered accountant.
If you don’t have two years’ worth of accounts, there are still lenders that will consider your mortgage application. You should still get one years’ accounts if possible but, beyond this, you’ll want to gather up any evidence that proves you both currently have and have consistently had regular work previously. If you’re a contractor that has recently left employment but intend to work in the same industry, proof of this could be helpful to your application also.
2. Build up a deposit or grow your equity
The larger your deposit/the more equity you have in a property, the less of a risk you are to a lender, so it makes sense to build them up before applying.
If you need to grow your deposit, look for where you can reduce your outgoings and the resultant savings can go towards this. If, on the other hand, you already own your home and will soon be remortgaging, consider low-cost alterations you can make to your home in order to increase its value before making your application.
3. Keep an eye on your credit rating
This is good advice in general but, as a poor credit rating will almost certainly lead to any application for a mortgage being declined, it’s particularly important you do your utmost to improve/maintain it if you’re going to be applying for a mortgage in the near future.
Some of the steps you should take are obvious: pay your bills on time, avoid taking out too much credit etc. Others, however, are less obvious.
If, for example, you have a credit card that’s near its limit, this is a sign that you’re a greater risk. Your credit rating will actually improve if the same balance is split across two cards instead of one. You should also try to avoid any activity that will lead to multiple credit checks being conducted on you, such as making multiple insurance applications, within close proximity of your application being made.
4. Don’t minimise your income (too much)
Yes, we know that many freelancers, contractors and so on minimise their income for tax purposes but, when it comes to applying for a mortgage, it can be very damaging.
Lenders want to see income that is consistent and predictable and minimising your income in order to reduce your tax bill portrays the exact opposite.
5. Always shop around
As always, keeping your options open and making a concerted effort to find the best deal possible is certain to result in you finding the best possible rates.
If you’re particularly busy, consider outsourcing the task of finding the best deal to a mortgage broker. It’ll prove to be money well spent in the long run.