More and more people are choosing to branch out, build their own business and become self-employed. This may initially sound like a great idea because you get to be your own boss and axe the commute to work, however, in terms of finance, it can be problematic and has lots of downsides.
Getting approved for finance and mortgages etc. can be an issue when you’re self-employed. If you want to get onto the property ladder within 2020 and you happen to be self-employed, start preparing as soon as you can. These small steps could allow you to take bigger jumps towards becoming a homeowner within the year.
Take note of the steps below to help you qualify for a self-employed mortgage during 2020.
Improve your Credit Score
Your credit score is one of the first things that lenders will look at because it helps them decide if you are a high-risk borrower or not. By looking at this, it can give them an overview of your current spending habits and how efficient you are at paying off your debts. If you haven’t ever borrowed and paid back the money, this can be just as bad for your credit score as repaying payments late. Doing things such as being on the Electoral Register can even boost your Credit Score!
Save as much as possible for a Healthy Deposit
If you save up and provide the lender with more money initially as a deposit, it will reassure the lenders that you are a low-risk client. This is because you will be paying more up-front and borrowing less of the lender’s money.
You can gain access to more efficient rates by presenting a significant deposit amount, especially if you are a self-employed applicant. A good figure to aim for would be around 10-15%, but 20% would be ideal.
Clear Old Debts
Upon looking at your application, lenders want to see that the loan is appropriate now and that it will be appropriate in the future as well. If you have old debts to your name, it can make getting mortgages quite difficult.
If you have other monthly commitments, like old credit card bills, lenders could also look at this as an issue regarding paying back your mortgage payments if your income were to decrease. Self-employed people can be affected by this – mainly as they tend to have an irregular income.
Sort out your Accounts
Someone self-employed would have to provide lots of different sources of financial information in comparison to someone who is employed full-time. If you are in full-time employment, you will only need to present payslips and a contract which will prove your income.
If you are slack with your accounting, then you should get up-to-speed as soon as possible – you could do this via an accountant if it helps. This will also make it simpler to provide evidence of your income when trying to secure a mortgage.
You should never be tempted to adjust your income just to reduce your tax bill. Although it is legal, this can have a huge impact on your mortgage application. These amounts will be monitored, but your lender will actually use your annual income to establish they will lend you.
Get A Mortgage In Principle
A ‘mortgage in principle’ is something you can apply for if you are eager to start house hunting. This is an agreement between you and your bank where they will lend you a certain amount of money. In order to get the full mortgage, you will need to pass the second round of checks.
This can give you a head start for the house-hunting process and allows you to put in an offer if you do find something you want. If your offer is accepted, you would have to go back to the bank and complete the process of application. This isn’t to say that you won’t be rejected as the process moves forward, but it is always good to get a head start with the process.
Speak To The Experts
A good way to get some advice is to speak to an expert. They can help you find a lender who specialises in organising mortgages for people who are self-employed.
They can provide you with advice on how to increase your credit rating, how to get your accounts in order and how much you ideally need to save as a deposit.
If you need assistance with a mortgage, then do not hesitate to call us on 033 000 20010 or complete an enquiry form here: https://costs.greenjellyfish.co.uk/contact/ and we would be happy to discuss your options with you.