If you’re self-employed, you may be under the impression that getting a mortgage will be difficult, if not impossible. Considering there’s so much conflicting information out there, it’s easy to see where this is the case.
Fortunately, this is a common misconception – there are plenty of willing lenders offering home loans for the self-employed. The fact of the matter is that every single case is different. All mortgage providers work to different eligibility criteria, so the smallest detail could make or break any application.
In this article we’ll be cracking some of the most common myths and misconceptions surrounding getting a mortgage when you’re self-employed.
Myth one: It’s harder to get a mortgage if I’m self-employed
While it may be trickier to secure self employed mortgages with your typical high street bank when you’re self-employed, this doesn’t necessarily mean your options are limited – you just need to know where to look.
There are plenty of mortgage providers out there who specialise in lending to self-employed applicants. Your best bet is to approach a whole-of-market broker who can use their expertise and extensive contact list to identify willing lenders.
Not only will this open you up to a wider range of providers, you’ll also receive quotes for the most competitive interest rates on the market, based on your individual circumstances.
Myth two: I need at least 3 years’ worth of accounts to get a mortgage
Although historically it has been the norm for lenders to request three years’ worth of accounts to prove your mortgage affordability, this isn’t always the case these days.
With new providers popping up all the time, many are now willing to consider mortgage applications for those who have been self-employed for less than two years, and an increasing number will accept one year’s worth of accounts.
There are also options if you’ve been trading for less than a year. Provided you have books from a qualified accountant drawn up year to date, some lenders are happy to consider you for a mortgage with evidence of as little as nine months’ trading.
Myth three: I need a higher deposit if I’m self-employed
The amount you can borrow for a mortgage varies by lender. Of course, as with any mortgage application, you’re more likely to be approved if you have a healthy deposit or own a good chunk of equity in another property.
That being said, there’s no reason why being self-employed should limit how much you can borrow, and providers don’t tend to discriminate on this basis. The key thing is that you’re able to prove you are able to afford your repayments.
The main problems arise if your earnings show disparity. When your income fluctuates heavily, it is difficult for lenders to establish how much you can afford to pay out each month – especially if you haven’t been trading for very long.
Myth four: I have a lower credit score if I’m self-employed
Since the days of self-certification mortgages are over, providers will make a decision based on both your salary and credit score, amongst other things.
While being self-employed shouldn’t alter the way in which your credit score is calculated, it is thought that some lenders penalise self-employed borrowers by giving them a lower credit score than employed applicants.
However, this isn’t necessarily the case. Self-employed or not, a history of adverse will count against your application. But if you have good credit history, your employment status should not be detrimental to your credit score.
Myth five: Providers will limit how much they loan me if I’m self-employed
Many self-employed applicants think that lenders will restrict how much they can borrow. However, in most cases you should be able to borrow the same amount as a regular employed applicant – depending, of course, on the rest of your application.
Some lenders are more generous than others (another reason to shop around for the best deal) with the majority capping at 3 – 4x your annual income. Some will stretch to 5 – 6x, and high net-worth clients or those with a secured loan to use as collateral may be able to borrow even more.
What’s more, a select few lenders will consider an income projection. For example, if you’ve been trading for 20 months and have a full set of accounts for the period, some lenders may consider using a qualified accountants projection, and lend based on the forecast income for the unfinished year.