What Income do Mortgage Companies Look at Self-Employed

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What Income do Mortgage Companies look at for Self-Employed?

What counts as Self-Employed?

Like most things connected with a mortgage, there are rules around what constitutes Self-Employment. A lender will consider you Self-Employed if you own more than 20% of a business and it gives you your main income.

To a Mortgage Lender, you’re in the Self-Employed category if you’re a sole trader, a company director or a contractor. These are all typical situations where One MP can help you explore your mortgage options.

Why proving your income is so important

Your annual income is vital information in getting a mortgage, because most lenders calculate your total mortgage amount based on your earnings. 

For Self-Employed mortgage applicants, this is a little trickier as your income can vary from month to month, year to year. As a result, lenders usually want to see a couple of years’ business details to get a good sense of your average income.

You will also need to supply business and personal bank statements, and lenders will look at your credit score too.

Proving your income as a Sole Trader

As a Sole Trader there is no legal difference between you as an individual and your business – so your business profits are your income. Lenders usually assess Sole Traders’ income by looking at your self-assessment SA302 form. You will usually need one to three tax years’ calculations, which you can access from the HMRC website. 

Proving your income as a Company Director

If you run your own Limited Company you will need certified accounts for the last one to three years. Each year’s accounts should state your salary. If not, you might need to supply P60 forms or tax calculations. 

Something to be aware of is that different lenders will base your income on different things. Many directors pay themselves a low salary to keep tax down. In this case, you may need to find a lender that will base your income on net business profit rather than your stated salary. With standard lenders, the loan amount might be much less than you were hoping for.

Proving your income as a Contractor

If your core business is contracting, where you take on a contract for six months or longer, lenders may base your income on your day rate. This is advantageous because they are looking at your gross income, which is higher than your post-tax profits.

Lenders might set a minimum requirement for continuing income, which is commonly two years, although some specialist lenders will accept 12 months. You will need to show details of your current and previous contracts. 

Do Self-Certified Mortgages still exist?

A few years ago the main way for Self-Employed people to get a mortgage was with Self-Certification mortgages. No proof of income was required – you just signed to confirm that your stated income was accurate. 

After the credit crunch in 2008, however, Mortgage Lenders became more rigorous in assessing their potential customers. At this point the FCA banned Self-Cert mortgages.

How do you go about getting a mortgage when Self-Employed?

The mortgage process is no different for the Self-Employed. You start by talking to a Mortgage Broker or using a mortgage calculator to work out how much you could borrow and set your property budget. 

It helps to get an Agreement in Principle from a lender, as this makes you a more credible prospect when you make an offer on a property.

Once your offer is accepted, you apply for a mortgage, supplying all the documentation the lender requests. Provided you meet all the criteria, including your credit rating, the mortgage should go through.

How do I improve my chances of my mortgage application being approved?

Making sure you apply for the right mortgage deal can be a challenge, because if you fall short on any criteria you could be rejected. Working with a professional Mortgage Broker like OneMP you can relax and let the experts do all the research and recommendation for you.

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. Call us today for a free initial consultation.

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Based in Leeds, One Mortgages & Protection Limited offers impartial and unbiased advice to customers UK wide, no customer is too far away to help.