The self employed sector is booming. More and more people are choosing to break free from the chains of conventional employment and build their own business. While this might save you from the dreaded commute and give you the freedom to be your own boss, it’s not without its downsides.
Securing credit is one of the things that gets a little bit harder when you’re self employed. And this includes mortgages. If you’re self employed and want to get on the property ladder in 2020, now is the time to start preparing.
With a little preparation now, you could be ready to take steps towards being a homeowner in the new year. Read on to discover how to make sure you’ll qualify for a self employed mortgage in 2020.
One of the first things that lenders will look at is your credit score. This helps them to determine if you are a high risk borrower. Your credit score gives them a snapshot of your current borrowing habits, and how well you repay your debts. No lending history can often be just as bad as poor lending history.
Sign up for a free trial with Checkmyfile to discover what the credit agencies already know about you. You can then fix problems with your file, start building your credit, or discover ways to boost your score. Even just being on the electoral register can help to boost your credit score.
By saving a larger deposit, you can reassure lenders that you are low risk. When you pay more up-front, you will be borrowing less of the full amount. This means that if you default on your mortgage payments, the lender will have less to recoup than if you had offered a smaller deposit.
As a self employed applicant, you can make sure you get access to better rates by offering a higher deposit amount. Aim for at least 10-15%, but 20% would be even better.
When lenders look at your application, they want to see that the loan is currently affordable and that it will remain affordable in the future. This is one reason that old debts against your name can make it more difficult to secure a mortgage.
If you have other monthly obligations, such as an old credit card bill, then lenders might see this as something that could compete with your mortgage payments if your income were to go down. This is a bigger risk for the self employed as they are more likely to have irregular income.
A person in full-time employment will only need to provide pay slips and a contract to prove their income. The self employed need to jump through quite a few more hoops. Most lenders will ask to see your accounts for a specific period, and this will vary between lenders.
If you are fairly lax with your accounting, now is the time to get everything up to date. If you don’t have a strong head for numbers, consider hiring an accountant. For a small monthly fee, they will manage your accounts and prepare your taxes. This can make it much easier to provide evidence of your income for a mortgage.
When completing your taxes, it can be tempting to adjust your income to lessen your tax bill. While many of these changes are completely legal and encouraged in many self employed circles, this can impact your mortgage application. Always be honest about your income as the lender will use a multiple of your annual income to determine how much you can borrow.
If you are keen to start the house hunt, you can apply for something known as a “mortgage in principle”. This is an agreement with your bank that says they will be willing to lend you a certain amount of money. You will need to pass their second round of checks in order to get the full mortgage.
This can be helpful as it allows you to start the house hunt process and then put in an offer if you find something that you like. If your offer is accepted, then you would return to the bank and complete the application process. This method is not without its risks, as you could be rejected further down the line, but it can be helpful to move the process forward.
Perhaps the best way to get yourself mortgage ready by 2020 is to find some expert advice. By working with a mortgage broker, you can find a lender that is accustomed to handling mortgages for self employed workers.
They will be able to give you advice on how to spruce up your credit score, how to get your accounts in order and how much deposit to save.