Getting a mortgage is never easy, but when you’re self employed, it can feel like the odds are stacked against you. Gone are the days when you can waltz into a bank and request a self certify mortgage. This type of mortgage was phased out following the financial crash in 2007. You have to work a little harder to prove your income for a mortgage application.
Misconceptions around the self employed mortgage industry means that a lot of people put off getting a mortgage while they are self employed. Worse still, they make some of these incredible common mistakes. If you’re thinking about applying for a mortgage while self employed, make sure you don’t make these incredibly common mistakes.
A lot of people assume that their own bank is the best place to start. After all, if you already have a relationship with the bank, you would assume they would be willing to work with you. But you could be missing out on a great deal if you head straight to your own bank. You also run the risk of your application being rejected.
Not all high street lenders work well with the self employed, so it makes sense to shop around for the best deal. One of the best things you can do is approach a mortgage broker. A mortgage broker will be able to help you navigate the lenders and find a bank willing to offer mortgages for self employed workers.
When tax season rolls around, many self employed individuals will make legal adjustments to their tax return in order to reduce their tax bill. If you are applying for a mortgage, most lenders will offer a multiple of your annual income as a maximum amount. If you have adjusted your income, this could be much lower than you can actually afford.
Make sure you are honest with your income and offer an accurate reflection of what you earn every year. But don’t be tempted to inflate your income as this can be just as disastrous.
Many self employed people start out as a sole trader. When the time comes to apply for a mortgage, they look to strengthen their position. So they change their business structure to a limited company. A limited company should sound more impressive, but this is actually a huge mistake.
By changing your business structure, you are resetting the clock at zero. Your past accounts as a sole trader won’t count for anything, and your new business will have no accounts and no filing history. If you’re applying for a mortgage, leave your business structure alone.
Many people will apply for a mortgage in principle before they submit their main application. This will give them time to look at properties, put in an offer, and then submit the full application. If you decide to do this, then don’t assume that anything is final until you’ve signed on the dotted line.
Many people relax once they have their mortgage in principle and decide to spend a little. This is usually in preparation for their big move. However, you should try to avoid any big spending sprees before you submit your final application. This can be a huge red flag to lenders and it could lead them to reject your application.
A rejected application will also show up on your record, which can make it difficult to secure a mortgage elsewhere. If you’re not sure what your credit file looks like, you can sign up for free with Checkmyfile.