How Much Can Self-Employed borrow Mortgage
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How Much Can Self-Employed borrow Mortgage
The first question when you start looking at buying a home is ‘How much can I borrow?’ For the Self-Employed it’s sometimes a little more complex to prove your income and set your property budget, so here’s what you need to know.
Can I get a mortgage when Self-Employed?
Self-Employment is rarely a barrier to getting a mortgage. As long as you have a good deposit and enough income to pay your monthly mortgage repayments, you should be able to buy a home.
The key question is how much you could borrow. The size of your loan is usually calculated based on your annual income.
How much can I borrow when Self-Employed?
Mortgage Lenders usually offer an applicant four to five times their annual income. For the Self-Employed this can be the biggest challenge – to make sure that the lender recognises your full income in making this calculation.
This is partly why it’s so important to have your business and tax records handy, to illustrate your earnings. Having a good Mortgage Broker on your side will also help you find the most appropriate lender for your situation.
If you want to borrow a larger amount, you could potentially explore a joint mortgage with a partner or family member. With joint mortgages, lenders base the total loan amount on your combined incomes, which should mean you can borrow more.
How much deposit do I need if I am Self-Employed?
Having a good deposit makes it easier to get a mortgage, both for Self-Employed and regular borrowers. The minimum requirement is 5%, but not all lenders offer a 95% mortgage and you will need good credit to get this size of loan.
Remember too that putting down a larger deposit will reduce the size of the monthly repayments on your mortgage. If you can put down a 20% deposit or more, you will have access to a wide range of lenders and the cheapest interest rates.
How will lenders assess my income?
Lenders assess Self-Employment income in different ways, depending on your trading style.
- Sole Trader – Lenders usually request two to three years’ tax returns, including the latest tax year. These state your annual income which helps the lender understand your average earnings.
- Partnership – Lenders will usually look at the overall profit for the business and take your income as a share of this total.
- Limited Company – Some lenders will only look at your salary, which could be an issue if you pay yourself a low base income to reduce tax. Other lenders take dividends and net profits into account too – so it’s important to seek mortgage advice. It may be better to explore specialist lenders if you want to maximise your borrowing potential.
- Contractor – While a lot of lenders will view you as a sole trader or limited company, some mortgage providers have special rules for contractors. They may accept your day rate as your income, as long as you can confirm that the contract is ongoing and that you have been in continuous employment for 12-24 months.
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How do I improve my chances of mortgage approval?
The secret to successful mortgage applications is to meet all of the lender’s criteria – which is why it’s so helpful to have the support of a Mortgage Broker. We’ll look at your income, deposit, credit history and property plans to set your property budget and find you a suitable mortgage deal.
It will help if you have all the relevant documents ready, and you will have a wider choice of Mortgage Lenders if you have been in business for two years or more.
It may be useful to use a Self-Employed mortgage calculator to check that the repayments on your target mortgage amount will be comfortably affordable. Again, if you can save up a deposit of 10% or more you will also improve your chances of approval.
How can a Mortgage Broker help?
A Mortgage Broker like OneMP will make it much simpler and faster to find a Self-Employed mortgage deal. We compare criteria, rates and fees to recommend ways to achieve your goals, support you in applying for a mortgage and help at every step towards purchasing a home.
We have helped hundreds of Self-Employed people achieve their property plans with a good mortgage deal. Contact us today for an initial consultation, free of charge.
One Mortgages and Protection Ltd is an Appointed Representative of Stonebridge Mortgage Solutions Ltd, which is authorised and regulated by the Financial Conduct Authority. We are registered in England.
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