Difficulties with Getting a Mortgage if you’re Self Employed

Mon, May 7, 2012

Financial Advice

It is notoriously difficult to get a mortgage if you are self-employed. It’s certainly not impossible, but it is harder to achieve than if you are employed by someone else. And it has got even harder since the financial collapse of 2007, which was due in part to irresponsible mortgage lending. What’s more Self cert mortgages, which many self employed home owners relied on, are not outlawed in the UK. The problem lies in the fact that banks are not totally comfortable lending money to those who don’t have a steady and clearly quantifiable income stream and they don’t want to take any unnecessary risks. They think that they may not be able to meet payments as easily as someone who receives a pay check at the end of every month. Because banks see self-employed people as a greater risk than others they tend to charge the more. This comes in the form of higher interest rates.

How to Increase Your Chances of Getting a Mortgage

Visit your accountant – the most important thing to do before trying to get a mortgage is to visit your accountant, if you have one. They will be able to help get your finances and paperwork in order.

Be prepared to pay a bigger down payment than you first thought – the more you pay as a down payment the less of a risk you are to the bank because they see that you are serious about owning a home and are not likely to abort as soon as making payments gets tough.

Get your financial affairs in order – pay off as much of your debt as possible before trying to get a mortgage. It goes without saying that the less debt you have the more attractive you are to the bank. Sorting your personal finances will help to improve your credit score. There is a direct correlation between your credit score and your chances of getting a mortgage.

Ensure that your tax records are in order – to get a mortgage you will have to provide tax records going back 2 or 3 years. This may not mean just your personal tax records but also any company records you have.

Be prepared to provide information about your income – telling lenders about your financial past is not enough. They are likely to want to know about the future. This means telling them about how you plant to maintain or grow your business.

Tell lenders about your other assets – if you have any other assets or savings be sure to tell potential lenders. Showing that you have other assets increases your chances of getting a mortgage.

If you do all of the above and still struggle to get a mortgage there is no need to panic. Spend a year or two getting everything in order and try again! Self employed mortgages aren’t easy to obtain. If you are serious about getting a mortgage you will eventually succeed.

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