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Getting a mortgage for the Self Employed

in Mortgages

Getting a mortgage has never been an easy process, even though all the banks and financial companies may make claims to the contrary. Mortgages are a necessary part of every homeowner’s life; however, the paperwork associated with the process has scared away many homeowners in the past. There are many rules which govern the dispensation of mortgage, and every different profession and credit rating seems to warrant a new set of rules.

If a person is self-employed or is having his own business, then the process becomes even more difficult. Self employed mortgages are available, but the processes and credit checks required are not the same. Salaried people can provide evidence of their fixed income and apply for a home loan, but for those who work on their own and have a variable income level, the scenario changes quite a lot.

Proof of Income

Earlier, before 2011, self-employed people could get a self-certification mortgage, where they could declare their income without any proof and apply for a self-employed mortgage. However, as of the current scenarios in the market, proof of income has to be provided when the initial application is made. This can be done by giving at least two years’ tax statements or company accounts, certified by a company accountant. The profits or income earned will determine the feasibility of giving a loan. The lenders will also discuss the future prospects in order to confirm whether the level of income can be maintained in the future or not.

Net Income

Most self-employed people will report reduced income in order to pay fewer taxes, but this can be detrimental when they are looking for a mortgage. A lot depends on how the taxes are put together, but if there are legitimate expenses and if the income levels are low only due to money being further invested into the company, then lenders might be willing to accept lower incomes while perusing the application. However, it is important to understand that at some point in time, a decision has to be taken on whether a larger mortgage is more important or not than saving taxes.

Lack of Account Statements

There are many people who may be working on a contractual basis, and may not have two years’ certified accounts to present to the bank. In these cases, their reputation and consistent good work may be taken into account. A history of regular work may tilt the balance in their favour. Some people may be very rich and may have more assets than income. A professional underwriter can assess the assets in these cases, and also make a judgement about the savings and investments being held by the customer. If these are found to be adequate, then a mortgage for a self-employed individual can be granted.

Other Options

Since self employed people make up 14 per cent of the working population in England, and 6 per cent of the temporary workers, there has been a lot of sustained effort in order to make it easier for this category of people to get mortgages for their homes. A largish deposit of 25 per cent and above, plus a good credit rating helps a lot in getting the mortgage application through. Some financial companies have begun to accept one year’s tax returns, plus a certified accountant’s projection for the next few years. In some cases, if more than 75 per cent of the home value is being sought as mortgage, then there is an insistence on at least three years’ of accounts, whereas if the amount being asked for is much less, then one years’ tax statements will suffice.

Good Credit Ratings

The other options are to get a parent to co-sign the loan, keeping in mind the fact that in the case of a default, they will be responsible for paying the remainder of the loan or establish good credit ratings, and an established reputation of regular self-employment.