Knowledge

Checklist: Getting a mortgage when you’re self-employed

Posted on Jun 1st, 2018 | Personal finance

Row of houses

Getting a mortgage when you’re self-employed might sound like an uphill struggle, but it absolutely doesn’t have to be if you have the right help behind you, and know what’s expected of you as a potential borrower.

If you’re concerned that you’ll be turned down, here’s what you can do to improve your chances of getting a self-employed mortgage, and what documentation you’re expected to provide.

What self-employed people can do to improve their mortgage chances

Lenders don’t just look at the numbers when approving a mortgage – there are several other factors that also influence their decision. You’ll stand the best possible chance as a self-employed worker if you follow these tips:

Speak to a broker first

Not all lenders have the same criteria – a broker will ensure you are matched with the most suitable lender.

Check your credit file

Ensure there aren’t any adverse entries against you, especially ones you’re not aware of.

Ensure you’re on the electoral roll

(Check with your local council, this will help with the credit score)

Make sure your accounts are all up to date

To achieve the most competitive rates you need to have an impeccable credit record, so make sure everything is paid on time. It’s good practice to put everything on direct debit.

Stay away from payday loans

Payday loans do not paint a good picture of your finances, and lenders will often read this as you being in financial difficulty. Many lenders will simply decline to lend if there is a recent record of payday loans.

Minimise credit checks for other insurance or credit applications

Multiples credit checks in a short space of time can reduce your overall credit score. Be aware if using comparison sites for insurance they will run multiple checks.

Don’t allow your credit card to reach its limit

The higher the % usage of your credit card will result in a lower credit score. We’d suggest spreading outstanding balances across two cards, rather than having one on the limit.

Don’t make just minimum payments

Again, making just the minimum payments can suggest to the lender that you could be in financial difficulty. It’s also worth considering this because unless you’re on an interest-free card, the minimum payments will never end up paying down the debt.

Sort your deposit early

Preparation is key, especially if family members are gifting you funds towards your deposit.

If using business funds, speak to your accountant for the most efficient way to access them

The sensible first point of call is to check with your accountant to ensure you’re doing this in the most tax efficient manner. Taking regular withdrawals can lead to a smoother underwriting rather than taking a large lump sum in one go.

When taking a large lump sum the lender may ask the accountant to confirm this will not be detrimental to the business, causing an extra delay in the process.

Get your documents in order

See our documents checklist below!

Get yourself an agreement in principle

Most estate agents won’t let you view the property, let alone make an offer without an agreement in principle. This will confirm the maximum loan to give you peace of mind that you are looking at properties within your budget. It’s also a good indication that your credit is in order.

What documents do I need to apply for a mortgage?

Here’s a definitive list of what mortgage lenders will ask for if you’re self-employed:

ID

Make sure you have valid photographic ID. If you present your driving licence, make sure it has your current address on it.

Proof of Address

A council tax, utility bill or financial statement will suffice. If everything is online, you should change one of your accounts to postal statements.

Employer

You’ll need to gather three to six months’ payslips and p60s. If you’ve received extra income such as bonuses or commission, some lenders may require two years worth of p60s.

Limited company accounts

If you’re a limited company director then the last two years worth of fully signed accounts is required in most cases. The latest accounts cannot be over 18 months old, so try to finalise the latest year’s as soon as possible.

Personal Tax Returns

Self-employed workers need to request three years SA302s and a tax overview from HMRC – see our Self-Employed Mortgage Guide for advice on how to do this.

Contractors

You’ll need the last 12 months of contracts, fully signed by all parties. These need to clearly show your day-rate and have been paid in sterling, with an expiry date ideally included on each contract. Obviously not all contracts have an end date, some go day-to-day, so rolling contracts can be accepted.

CIS or Umbrella

Six months’ worth of payslips are required.

Bank Statements

These can include postal or downloaded versions of the last three months’ salary fed bank statements, three months business bank statements and three months bank statements showing rental.

Deposit

You need to provide a statement showing funds held, and a build-up of funds. If funds are a gift from a family member, you need a statement letter from them confirming they have funds or that they have been transferred to you.

Background Buy to lets

If you have Buy -To-Let properties as a source of income then a Tenancy Agreement and three months bank statements to evidence rent will be needed.

Life insurance or other protection

Lenders will usually need to see evidence of any Life insurance you have in place to cover the mortgage. This usually means they just need to see a copy of the policy summary.

Need more help getting a mortgage?

Our free downloadable guide will give you a jargon-free insight into getting a mortgage when you’re self-employed.

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