Documents needed for Self-Employed Mortgage
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How does a Self-Employed mortgage differ from other mortgages?
There is no such thing as a ‘Self-Employed mortgage’ and in reality, Self-Employed people are able to apply for the same mortgage products as employed people are. The application will be assessed slightly differently, as Mortgage Lenders are more cautious when assessing a Self-Employed applicants income.
Self-Employed mortgage applicants have to go further to prove their income, as lenders will be assessing a longer working history of two to three years, as opposed to three months with an employed person. This means that proof of income will need to be provided to cover the required period, and there is some variance in requirements between lenders, as each has their own set of criteria that you will need to satisfy.
Mortgage Lenders use an average figure derived from the two to three working years requested in order to mitigate the risk in their lending, as they feel that this figure is a more realistic portrayal of your ongoing earning potential. This figure will be used to calculate your loan.
What specific documents do you need?
The documents that you will need to submit as proof of your will slightly vary depending on the type of Self-Employed worker that you are, as per the below explanations:
Limited Company Director
As a Limited Company Director, the lender will use your personal income and dividend payments to calculate your average income over two to three years. There are a few independent lenders who will consider your net retained profits alongside your personal income, however, this is uncommon.
To prove this income, you will need to provide two to three year’s worth of finalised, certified accounts, and your SA302 tax calculation forms and end of tax year overviews for the required period. In some cases you may also need to provide business bank statements.
Some lenders offer mortgages to Self-Employed workers with only one year of trading history behind them, although in these circumstances, you will likely need to further substantiate your future income security. The sort of documents required for this purpose will be a business plan and/or profit projections. It’s unlikely that interest rates will be competitive on this type of mortgage offer.
A partner must own more than 25% share in the company for lenders to consider your share of the net profits as income in support of your mortgage application. Similarly to a company director, you will need to provide certified accounts for two to three years and SA302 tax returns for the same period.
Sole Traders and Freelance workers
Mortgage Lenders base their loan calculations on an average of your personal income from the past two to three years to calculate your loan, so you will need to provide SA302 forms for the requested tax years as proof of your income.
Contract workers are sometimes able to use their day rate and some lenders use an annualised version of this to establish an average income, although this is more difficult for contract workers than other Self-Employed business types. As well as SA302s, you may have to provide client contracts to further substantiate your ability to maintain a stable future income.
How do you improve your chances of being accepted by a lender?
All mortgage applicants will benefit from financial preparation prior to making their mortgage application, however, as a Self-Employed worker, this can be key in ensuring you secure an offer.
If you have the ability to raise your basic salary, either through promotion or if you’re a business owner, by increasing the amount you pay yourself or the dividends that you take, this will benefit your application. It’s also important that all tax related documentation is up to date and accounts authorised by a certified accountant.
A higher credit score will also benefit your application, you can try the following to achieve this:
- Be listed on the electoral roll (current address)
- Pay off debt
- Ensure outgoings are paid in a timely manner, i.e utility bills and credit cards
- Any use of existing credit agreements should be minimised and not extended further
Offering more than the minimum deposit requirement is a good step for Self-Employed applicants and will afford you access to better rates, as well as a better chance of securing an offer.
Speak to Heritage
Here at Heritage, our Mortgage Brokers have access to some of the most competitive deals available for Self-Employed borrowers, from across the mortgage market. We can save you time and money by reviewing your application and ensuring that you apply with a lender whose acceptance criteria most closely matches your own circumstances.