If you're self-employed, you normally need to do more to evidence your income. Ideally, you must demonstrate a steady income over the past 2 or 3 years. Many lenders now accept an HMRC SA302 form as verification of income. Our Mojo experts can help you navigate the process of applying for a mortgage when you're self-employed.
How to prepare for a self employed mortgage application
While applying for a mortgage as a self-employed person shouldn't necessarily be more difficult, you should still prepare appropriately to take the hassle out of the process.
- Build up a deposit
- Sort out your finances
- Get a mortgage in principle
- Find a property
- Gather your documents
- Apply for a mortgage
Build up a deposit depending on your rough property budget. You normally need at least a 5% deposit, but the larger it is, the better mortgage deals you can access.
Sort out your finances so that you can evidence your income appropriately to lenders. You might want to hire an accountant. Lenders sometimes prefer accounts provided by a certified accountant as they're more reliable.
Get a mortgage in principle which is a document that outlines how much a bank or building society is willing to lend you. Also known as an agreement or decision in principle, it isn't a guarantee they'll accept your application. But it helps with budgeting, and estate agents may ask to see it.
Find a property that you want to buy. Based on your deposit and mortgage in principle, find homes within your budget. Once you've had an offer accepted, you can apply for a mortgage.
Get your documents together so that they're ready to send when you apply for your mortgage. Deals change quickly so it's best to get these to your broker as soon as you can.
Apply for a mortgage – if you're using a broker, they normally take care of this part for you.
What our expert says
Need more help?
Lenders usually cap your borrowing amount around 4.5 times your annual income.
If you're a sole trader, they may take an average of your net profit over a period of time in order to work out this amount.
They normally look at your share of net profit or salary and dividends if you're a company director.
For contractors, they may take an average of your income over the past few years. But if your earnings have changed significantly in that time, they might look at your lowest earning year.
Yes, you can get a joint mortgage with someone who's self employed.
But they need to evidence their income properly. The lender needs to be satisfied you can make the payments.
If they don't do this, it increases the risk of you both being rejected which can impact both your credit scores.
To limit this risk, it might be worth speaking to a broker who can advise you both on what documents you need to provide.
Many lenders require at least 2 years of certified accounts when you apply for a mortgage as a self employed person.
But there are some providers that may be able to consider you even if you've only been employed a short amount of time. Bear in mind that you'll have access to a smaller range of deals though.
A broker can help advise you on which lenders may be more likely to consider you.
No, self employed people don't generally pay higher mortgage rates than others.
But if there are any complications with your application, you may find that the only deals available to you have higher rates.
This could be the case if you've only been self employed for a short amount of time or you have poor credit.
Learn about different mortgage types
are a type of loan used to buy a property. The mortgage is secured against the value of the property.
are designed to help give you that first step on the housing ladder.
are for when your current mortgage deal comes to an end.
are where you only pay back the interest each month. When your mortgage term comes to an end, you still owe exactly what you borrowed at the start.
aren't that different from a regular mortgage. But there are some important differences.
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The final hurdle before the house is officially yours – swap contracts and insure the building.
YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY. YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
The Financial Conduct Authority does not regulate mortgages for commercial or investment buy-to-let properties.
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