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Self Employed Mortgages

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How do I get a self-employed mortgage?

A self-employed individual looking for a mortgage has access to the same mortgages as employed individuals. However, they need to pass an affordability test from the lender as would any other borrower.

Since there is no employee to recommend them, self-employed individuals usually need to provide more evidence to show their financial capabilities than other borrowers. Mortgage providers can have very tight lending criteria. You need to convince them beyond doubt that you are perfectly capable of meeting your monthly repayments without fail.

Self-employed mortgages are not necessarily more expensive than standard mortgages. The only difference is the strict guidelines lenders follow when dealing with self-employed individuals during the application and decision process.

What is a self-employed mortgage?

The credit crunch made it harder for freelancers, self-employed and contract workers to get access to mortgage facilities from most lenders. As a self-employed individual, it can be hard to get a mortgage as you are required to prove that your source of income is reliable. However, it is by no means impossible and more and more lenders are willing to lend to such circumstances. If you are a self-employed individual looking for a mortgage to buy a home, some lenders offer specific self-employed mortgages.

There are numerous ways self-employed individuals can prove to lenders that they are capable of paying their mortgage. You only need to jump through a few hoops to secure your mortgage. Lenders view you as self-employed if you own at least 20% of a business that provides your income. This can be a sole trader, a contractor or a company director.

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What do I need to provide when applying?

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What do I need to provide when applying for a self-employed mortgage?

The requirements can vary from one lender to the other. Most lenders will also require that you provide accounts prepared by a chartered accountant to be sure of your reliability. They mostly focus on your average profit over the last few years. Having a good credit score can go a long way in making it easier for you to get a mortgage approval.

What is the difference between capital and interest only?

Capital repayment means you pay both the capital and interest back to a lender, where an interest only mortgage means you only pay back the interest and the amount borrowed is left to pay in full at the end of the term. There are various uses for an interest only facility and can be beneficial in certain situations however for a standard residential mortgage it is usually recommended that the capital repayment option is taken as long as it fits within an applicant’s budget and/or circumstances.

Should I consider my credit score?

A credit score is statistical data that determines your credit position. There are 3 more commonly known credit referencing agencies; Experian, Equifax and Call Credit, all of whom report data to give you an overall score. There are various factors that can impact your score these include; missed payments or defaults on your finances, not being on the electoral register, too many searches being carried out on your file within a short period – all of which can have a negative impact on your score. Being on the electoral register, keeping up to date with your payments and not being over indebted (being too reliant on credit) can improve your score as well as other factors. As well as lenders using credit scoring from these credit referencing agencies, they also conduct their own personal internal score on you as a client to make a decision on whether to lend money or not.

What is 'affordability'?

This again is a generic term used in the mortgage industry to simply state whether something is affordable or not. I.e. based on the information provided, is it reasonable to assume you can afford to keep up with the repayment. Again, various factors come in to play when assessing the overall affordability as mentioned above in ‘what is an income multiple’ & ‘what is a mortgage term’.