A Guide to Getting Mortgages While You're Self-Employed
Applying for a mortgage can be daunting when you're self-employed and think that it’s impossible to get one. But there are ways you can make it happen.
What you need to get a mortgage
When applying for a mortgage, you have to submit documents that will help your lender understand your financial situation. This verifies everything in your financial life and proves that you are financially stable. Meaning, you can support yourself and pay for the loan.
When you’re self-employed, it will be quite difficult to prove this when you compare your documentation to traditional W-2 employees. You need to have at least two years worth of updated and organized accounts, a certified or chartered accountant, a track record of regular work, a healthy deposit, a good credit history.
Updated and organized accounts
Lenders usually calculate your average profit based on the accounts you've submitted before determining how much they will lend to you. Remember that lenders get disappointed if borrowers would present outdated figures, so make sure that such documents are up-to-date and organized.
Certified or chartered accountants
Lenders usually prefer it when borrowers would employ certified or chartered accountants to make sure that every detail in your account is valid and accurate.
Track record of regular work
If you're self-employed, there's still a chance that lenders will consider your mortgage application as long as you can prove a track record of your regular work.
You have a higher chance of getting a mortgage loan when you currently have a huge amount of deposit on an existing property. This will make your mortgage rate cheaper because it proves that you are a lower risk to the bank.
Good credit history
Having a good credit history, meaning all of your debts are settled, increases your chances of getting a mortgage loan. Don't forget to check the report as well since there's a possibility that it could harm your application.
How your business set-up affects your mortgage chances
Choosing a certain business structure influences the lenders' view of your income. So, make sure that you choose the right one for your business.
When you're a sole trader, lenders might look for a form called SA302 wherein the total income received and due tax is listed. If that’s the case, prepare it together with your accounts when you apply for a mortgage loan.
A partnership means that you're sharing the business' profit with a partner. So, when you apply for a mortgage loan, remember to show the share of profits between you and your partner, as well as how much money you are earning from it.
When you have a Limited Company and applying for a mortgage loan, lenders will consider both sources of income such as basic salary plus dividend earnings.
Proving your income
Proving your income is just one of the important steps when applying for a mortgage loan. Expect that the lender might ask you questions about the accounts, so make sure that you have studied them to impress them because being able to answer clearly and confidently will increase your chances of getting a mortgage loan.
Remember to always take advice from your hired accountant and mortgage broker before applying for a mortgage to know which mortgage loans will work for you and how you can prepare for them.
Finding a mortgage
Mortgage brokers can be very crucial especially if you are self-employed and most likely know which lenders are suitable for your situation and needs.
When applying for a mortgage loan, remember to have an updated records and accounts prepared by your accountant. Additionally, consult the concerned people first for your options such as the mortgage broker or current lender before applying for a loan.
Also, don't minimize your income to reduce the due tax as this might affect your standing. Lastly, don't think that just because you're self-employed, it will be impossible to get a mortgage. Just prepare everything that lenders might ask for, study the reports, and don’t get intimidated!
Carol Soriano is a consultant for PawnHero.ph, the very first online pawnshop in the Philippines. A writer at heart and a social media enthusiast, she finds personal finance, investment and money matters interesting topics to write about.