How to get a mortgage when you’re self-employed

Collaborative post

This guide is written for self employed people who want to know how to get a mortgage but are worried about not being able to demonstrate eligibility like someone who is in a traditionally employed role. It is also relevant for freelance workers and business owners; although I’ll be focusing on sole traders mainly instead of limited companies, which is really a whole other ballgame.

A mortgage can seem like a difficult thing to get when you are self-employed. But with a little bit of research and effort, it is possible!

So what are the challenges? Well, self-employed people often find themselves in a tricky position when it comes to acquiring mortgages. They may not make enough money consistently each month to meet the requirements for a traditional bank loan, since we all know income can fluctuate month to month. Or they might have too much income split between many jobs. However, there are some steps that can be taken to help improve your chances of getting approved for the mortgage.

Keep records

It depends on your mortgage broker but most banks will expect to see at least 2-3 years of detailed accounts before offering mortgages. Even if you don’t currently use an accountant and do your own taxes, this is when it could be worth using one to help with your tax return to ensure your records are detailed enough and to also have that additional verification. You’ll also need to log into your HMRC account to download your previous tax year overviews. If you are freelance but work consistently on retainers; contracts of future work may also be useful. You will need a few years of records so if you’re very new to freelancing, some people opt to find a temporary job that they can use an employer reference for when applying for a mortgage and then starting freelancing down the line once your mortgage is secure.

Bugetting is key

Budgeting for bills is a process that involves forecasting your future expenses and then tracking them as they happen.-tricky when self-employed but not impossible. There are lots of tools that can help you set up your budget and track your income and expenses on day-to-day basis so you know where your money is going at all times. Some tips to help you save money that will help you live more frugally and still have enough money leftover at the end of the month are: making your meals ahead of time; making the most of loyalty schemes and discount apps (such as vouchercloud) and making swaps-such as using a reusable coffee cup with a homemade brew rather than stopping at a coffee shop.

Estimate your payments

The next step before applying is to actually figure out how much your mortgage payments will be; which will help with budgeting and savings. Using tools to help calculate your payments can give you an idea but it’s also important to remember it’s not just about what you can afford-it’s about how much your bank thinks you can afford and this is important. Lots of the time people base affordability just on rent they’re currently paying but banks generally lend a % of income so using a mortgage affordability calculator is important too!

Shop around

Finally, shop around! You might find it a little more restrictive to find mortgages that cater to the self-employed but they do exist. Working with a broker who specialises in finding mortgages for those who are self-employed or not in traditional employment is also important.