Qualifying for a Self-employed Mortgage Can Require Additional Effort
Lenders require proof of income before they will sanction any mortgage, and this is easier to do when you are employed and can obtain proof of income from employers. When you are self-employed this can become difficult, unless you are able to submit accounts for at least three years and corresponding tax returns that in a way authenticate this income.
Institutions that offer mortgages will require that as a self-employed person you submit accounts that are showing that you are making a healthy profit, in any business that you are in. They can then offer mortgages that require self-certification of the income declared in the application you have made for a mortgage. You have to be careful to ensure that you do not exaggerate income in these applications, as it can be considered a fraud that can make you liable. You must be very careful to ask for mortgage amounts that you are sure you can repay, so that any question of legal liability for a declared income, should never arise.
Most business owners work with their accountants to reduce taxes, and they can only do this by reducing their net income, through legal means like showing expenses and other devices that are accepted by income tax authorities. But this reduced income will come in the way of lenders offering you self-employed mortgages and can limit the amount that can be available. The rules that lenders follow are fairly simple. If you do not have the right income, you will not get the amount you require for the mortgage. Business owners do try to stretch their credit lines to help the business, but this can have an adverse effect on reducing credit scores, and this, in turn, can affect your ability to get a mortgage or getting lower interest rates.
Getting a self-employed mortgage becomes still more difficult for people who have just started a business, and have no past records to show. In such cases, you will be well advised to find an acceptable co-guarantor for the loan, so that you are at least eligible for the loan mortgage. Another thing you can do is to arrange a higher deposit so that you are able to ask for a lower mortgage amount. As this builds in equity into the property, lenders may find it less of a risk to offer a mortgage. Lenders may also be more comfortable if you can produce contracts or other letters of intent from large or reputed companies to whom you are contracted out to for some work, and which will ensure you a reliable source of income in the future.
It becomes much easier to get a self-employed mortgage if you are able to offer some collateral like a savings account or even a retirement fund you contribute to. If the interest on these is enough to cover the monthly instalments that you have to make, getting the mortgage can then be easy. Self-employed mortgages are not impossible to get, but you will have to look around till you find a lender who is willing to accept you as a person they can loan money to.