The primary qualification for a mortgage is the ability to pay back. People who are employed in steady jobs have pay slips that help prove that they can repay their mortgages. Things are a bit different for the self-employed. Self-employed people have fluctuating incomes. Mortgage lenders find it hard to lend money to people who do not have steady incomes. They fear that these people cannot repay the loans. This does not mean that there is no self employed mortgage for people without incomes. It only means that these mortgages are harder to get.
The self-employed mortgage process
Self employed mortgages were easier to get before the credit crunch of 2007. People doing private business could easily walk into banks and come out with loans. The mortgages were actually referred to as self-cert mortgages. Their processing was fast-tracked without the need to prove incomes. The self cert mortgages were aimed towards freelancers, businessmen, contractors and people with multiple sources of income. Unfortunately, some people took advantage of the fast tracking and borrowed money they could not repay. About the same time, there was economic depression. These forced mortgage lenders to establish credit crunch. Since then, borrowers are now forced to go an extra mile in proving their creditworthiness.
Self employed mortgage is not really a word that is officially recognised by mortgage lenders. The only difference between this type of mortgage from other mortgages is that the borrower has a lot to do to prove that he can repay the mortgage. Lenders have a checklist that they tick when assessing a self employed mortgage applicant. These are the things that you need to know before applying for a mortgage because they determine whether your application will be accepted or rejected.
Requirements for Self employed mortgage
The first thing that lenders ask borrowers is their financial accounts. It is expected that any self-employed person should keep a record of his incomes and expenditures. This is the basis for the request of the borrower’s financial record. The account will enable the lender to determine if you can repay. The financial history should go back a few years. Most lenders ask for a two year’s account. The account must also be up to date. You must ensure that the account you provide is drawn by a certified or chartered accountant. A lender may reject an account that is drawn by either the borrower himself or any other unqualified person. Rather than your business financial account, you may also use your tax return to get a self-employed mortgage.
You must also ensure that your credit history is perfect. Lenders can be more exacting with credit histories of self employed people than they are with salaried people. The credit history of a self employed person shows how frugal he is with his money. A self-employed individual with a good credit history has more chances of getting a mortgage than a salaried person with similar credit history. Paying your credits on time is important. In case you have a problem with your credit company, make sure that you sort the problem out before applying for a mortgage.