Introduction
Being a self-employed freelancer often makes it difficult to get accepted for a mortgage, making it that little more difficult to buy the dream house, even when you have a reasonable income behind your belt. The use of a mortgage calculator such as the one from Rightswitch can help you see what options are available, how much you need to pay back over the course of years and how much money you’ll have available for daily living. This article will discuss the best mortgage lenders for self-employed freelancers.
What is a mortgage and what is it for?
First off, what is a mortgage and what is it actually used for? A mortgage quite simply is a loan with interest from the bank in order to purchase a home or form of property. Down payment will need to be put down to demonstrate that you are good for the money. Whilst you have a mortgage the property will be technically be owned by the ‘bank’, however, upon successful completion of paying off your mortgage, the home will then be in your name. Mortgages are widely used and a convenient due to the fact that only a small minority of the population has enough money on hand to by a house out-right, instead, allowing the house to be paid in small instalments over the course of many years.
How hard is it to get a mortgage if you are self-employed?
Being a self-employed freelancer can often be difficult to obtain a mortgage. This is due to there being no guaranteed income every month, something which is required for a mortgage. As well as this, previously individuals exploited the system, making up numbers and lying about their income, resulting in bigger loans from the bank being given out. It is, therefore, a case of verification, and a long one at that. Below we will discuss the mortgage approval process to help you understand it a little bit better.
The mortgage approval process for the self-employed
In order to be considered for a mortgage by the majority of banks, you will need evidence of the following:
- Two year’s accounts history
- A healthy deposit to place down
- A strong credit history
- Proof of quality work within your particular line of work
These will be needed to ensure you are good for the money, providing proof that you earn as much as you do with the extension of 2 years accounts of tax returns being used. A healthy deposit is also required to initially put down on the house (without this you will not be accepted), a strong credit history is vital to ensure that you are able to pay off previous debts within the required timeframe, providing evidence to the bank that you are good for the money and should run in to no problems whilst paying off your mortgage whilst proof of quality work ensures you are able to make consistent money, once again proving that you can and will pay off the debt.
Documents
One of the main documents in which the bank will ask evidence for is for 2 years account history or alternatively 2 years of tax returns. Hiring an accountant can help the process if you have the money available, if not simply remain on top of this, ensuring to put in for your tax returns every year whilst updating the books weekly.y
Challenges
One of the main challenges to the self-employed whilst applying for a mortgage is providing proof of accounts. This is especially difficult if you are a relatively new self-employed freelancer. Moreover, the addition of providing a healthy deposit can also be a difficult process if you do not have much disposable income at the current time, especially since the market for freelancers can often be all over the place. Ensure to store money away each month to have the required funds for a good quality deposit, whilst consistently putting in for tax returns every year.
How to improve your odds of being approved
Simply providing the bank with everything required is your best bet. Ensure you have no previous track record of credit card debt, with evidence of payments, hire an accountant to do your books professionally, save money and provide proof of a healthy, quality deposit in which you can place down and finally enjoy, and do your job well! Provide quality work which provides a consistent income (easier said than done, I know!), all of which will improve your odds of being accepted. Alternatively, incorporating your business will provide further evidence of accounts, consider this especially if you are a new self-employed freelancer.
Tips
The best mortgage lenders for the self-employed
Natwest offers a 2 year fixed cashback mortgage. Providing a maximum LTV of 75%, an inital rate of 1.52% until 30th June 2021, 4.21% variable (SVR) and the overall cost for comparison at 4% APRC makes for a fantastic mortgage for self-employed freelancers.
Alternatively, Leeds building society offers a maximum LTV of 85%, 0% variable for 3 months, a SVR variable of 5.69% and overall cost of comparison at 4.8% APRC.
Picking the right lender for you
In order to pick the right lender, it is firstly important to shop around and look through the many options, not selling yourself short. Look at the fees within the mortgage, if these are not affordable then do not go for this particular one. Different mortgages will offer different fees, making them more suitable to you. Remember, the use of the mortgage calculator can help you understand your financials through a variety of different mortgages. Finally, look for any tie-ins, such as exiting the mortgage early which may result in a penalty charge, although unlikely to leave your mortgage, it does happen. Therefore, prepare for the worst and find a no tie in approach or one which houses only a small fee.
Conclusion
Finding a mortgage for a self-employed freelancer can be a difficult task, especially if you don’t have the right paperwork. To increase your chances of being approved, make sure to stay on top of your books and remain positive in good credit history, hire an accountant if possible and be prepared to provide a variety of documents in which the bank may ask for. When choosing your mortgage, ensure it is flexible around you and then you can afford it, consider tie-in fees and most importantly make sure it is right for you.
