If you’re self-employed, you may have encountered some challenges when it comes to securing a mortgage. While it is certainly possible for self-employed individuals to get a mortgage, it can be more difficult than it is for those who are employed by someone else. This is because self-employed individuals may have less consistent income and may have a harder time providing proof of their income to lenders.
In this blog post, we’ll explore some of the reasons why it can be harder for self-employed individuals to get a mortgage and what you can do to improve your chances of being approved.
Why is it harder for self-employed individuals to get a mortgage?
There are a few reasons why self-employed individuals may have a harder time getting a mortgage:
- Consistency of income: One of the main factors that lenders consider when evaluating a mortgage application is the borrower’s ability to make regular payments. For self-employed individuals, this can be more difficult to demonstrate due to the variability of their income. Lenders may be hesitant to approve a mortgage for someone whose income is not consistent from month to month or year to year.
- Proof of income: One of the most important factors that lenders consider when evaluating mortgage applications is the borrower’s income. For self-employed individuals, verifying income can be more complex than it is for those who are employed by someone else. Lenders may require additional documentation, such as tax returns and business financial statements, in order to confirm the borrower’s income.
- Credit score: A good credit score is important for anyone who is applying for a mortgage, but it can be especially important for self-employed individuals. This is because lenders may be more hesitant to lend to someone who doesn’t have a steady, predictable income. If you have a low credit score, it may be harder to get approved for a mortgage.
What can self-employed individuals do to increase their chances of getting a mortgage?
If you’re self-employed and you’re thinking about applying for a mortgage, there are a few things you can do to increase your chances of approval:
- Get your financial documentation in order: Make sure you have all of the necessary documentation you’ll need for a mortgage application, such as tax returns and business financial statements, ready to provide to your mortgage adviser and lender. This will make it easier for them to verify your income and assess your credit-worthiness.
- Build up your credit score: A good credit score can help you get approved for a mortgage and get a better interest rate. If your credit score is low, work on improving it by paying your bills on time, paying off any outstanding debts, and limiting your credit card use. You can check your credit score for free with one of the credit reference agencies like Experian.
- Save for a larger deposit: A larger deposit can help you get approved for a mortgage, especially if you’re self-employed. In fact, some lenders insist on a larger minimum deposit for self-employed customers than they do for employed customers. By putting down a bigger deposit, you’ll be able to show lenders that you have the financial resources to make your mortgage payments.
- Use the expertise of a mortgage broker: Don’t assume that you won’t be able to get a mortgage just because you’re self-employed. Different lenders have different requirements and may be more or less willing to lend to self-employed individuals depending on their attitude to risk. Speak to a qualified mortgage broker who can use their expert knowledge of lenders’ criteria to find the best one to fit your requirements and circumstances.
While it can be more challenging for self-employed individuals to get a mortgage, it is definitely possible. By getting your financial documentation in order, improving your credit score, saving for a larger down payment, and using the expertise of a mortgage broker, you can increase your chances of approval.