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How The Self-Employed Can Get a Mortgage

How the Self-Employed Can Get a Mortgage

Things have become more difficult for the self-employed in recent years. It wasn’t that long ago that small business owners could declare their own income when applying for a mortgage. In 2010, this was stopped, amid claims that they were contributing to the economic downturn, due to mortgage fraud. Now, considerable documentation is required in order to apply successfully.

The self-cert mortgage allowed the self-employed to tell the banks what they earned from their business, and that would then form the basis of decision-making. Now however, the banks do not trust borrowers to be truthful about their earnings, and so most have introduced a different system. Now, most lenders like to see three years’ worth of accounting.

This poses several problems. The first of which is if you do not have three years history of being self-employed. New businesses owners will find it very difficult to show enough evidence of income, and previous earnings from an employer are not taken into account. Another potential issue is that lenders often only decide lending criteria against the year that shows the weakest finances. Years one and three could show twice as much income as year two, but the bank may only lend assuming you will continue to earn what you did in year two.

With things being so difficult, how exactly do you go about getting a mortgage if you’re self-employed? The only hard-and-fast way to be confident of getting a mortgage is to have excellent accounts. This doesn’t just mean having a good income; it means being able to show where money is coming and going, and explaining any negative trends. A continual decrease in earnings will certainly not look good, but if there’s a dip anywhere, and you can clearly show why, then you might not have a problem.

You might also find that your mortgage provider runs a credit check on your business as well as you. For this reason, you should run your own check to make sure that any information contained in it is accurate, and that if there are any issues, you are prepared to explain them.

One of the final things you can do to secure a mortgage is to talk to a specialist broker. They can often find deals and lenders that can help self-employed people who are struggling to get a mortgage. While the big banks do lend to the self-employed, they often have very strict criteria. A broker will know how best to approach the situation, taking your details in to account. It’s always good to get advice, and with this being such an important decision, your mortgage is no exception.

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