Self Employed Mortgage First Time Buyer
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Self Employed Mortgage First Time Buyer
Charles Breen is here to talk us through getting a mortgage if you are self-employed and a First Time Buyer.
Can I get a mortgage as someone who is self-employed and a First Time Buyer?
You most certainly can. Once you’re able to prove your income, there’s no real impediment to you getting a mortgage, whether you’re a first time borrower or a home mover.
When you’re self-employed you just have to go through a few more checks and balances. But being a First Time Buyer makes no difference.
How does getting a mortgage work as a self-employed First Time Buyer? Is it difficult to get a mortgage in this situation?
It’s a little bit more difficult because you’ll have to go through a few extra checks to prove your income. You need your one year’s accounts submitted via your accountant. You’ll need your SA302.
If you’re a limited company, you’ll need your submitted company accounts. But once you have that documentation and your bank statements, it’s a very similar process.
Some lenders do have specialist underwriters just for the self-employed so you would end up going into that pot of underwriting. Lenders may credit score you more stringently, or possibly decrease the amount you can borrow because you don’t have the same track record or level of certainty in the amount of money you will earn. That’s why they are a bit more onerous in their checks.
But it’s not difficult if you go to a specialist mortgage advisor like ourselves. This is our bread and butter – we find it quite simple. The important thing to do is contact someone beforehand, do your research, get your Agreement in Principle and then it should be easy from there.
How many years do you have to be self-employed to get a mortgage as a First Time Buyer?
You can do it at the end of your first year of self-employment, as long as your accounts are all submitted.
Lenders will want you to have a track record in your industry. If you went from being a teacher to a self-employed carpenter, a lender would query whether your work is sustainable.
But if you went from being an employed carpenter to a self-employed carpenter, they’d be absolutely fine with that. You have experience and history in the industry.
How much can I borrow as a self-employed First Time Buyer?
It depends if you’re a sole trader or if you’re a limited company director. If you’re a sole trader, they’ll just take your profits. For a limited company director they will look at the last year’s salary you took from the business, plus dividends, the net profit and the gross profit.
Different lenders use a different combination of those four. Again, that’s why you go to a mortgage advisor. We know which lenders will offer the right combination to maximise your chances of a mortgage and the amount you can borrow.
Some lenders may tighten the loan amount if you only have one year’s self-employment history. But the important thing is to go to an advisor to work out that calculation. We will tell you exactly how much you can borrow.
While you can go onto those online calculators, there may be different ways to assess your income. It could give you misleading figures about how much you can borrow and then you’ll have a false expectation of the properties you could purchase. Talk to a professional to understand exactly how much you can borrow from the start.
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How is a mortgage calculated for a self-employed First Time Buyer?
It goes back to the various forms of self-employment. If you’re a sole trader, it will just be on your profit you’ve declared for last year – that’s seen as your salary.
If you’re a director of a company, they’ll look at your salary, your share of dividends, net profit and gross profit. If you are a partner they look at different combinations, and if you are a shareholder with less than 20% they would take a different combination again.
An advisor will take your form of ownership model into account to work out what banks will lend to you based on the figures provided.
What documents do I need to apply for a self-employed First Time Buyer mortgage? How do I prove my income?
As with every mortgage, you need a photo ID, bank statements and a credit report. To prove your income as a sole trader you will need your SA302 – your self assessment – and then business bank statements.
For a director of a limited company you need the SA302, business bank statements and company accounts to prove how much net profit and gross profit the company has made.
From there we calculate how much you’re able to borrow and also submit the mortgage application. Some lenders will want tax year overviews, but SA302s and company accounts will usually suffice. Certain lenders will even use an accountant’s certificate – because your accountant knows your company better than any underwriter does.
What happens if someone has bad credit and they’re self-employed and looking for their first mortgage?
It’s not the end of the world. It just limits the choices of lenders and they may want you to put down a larger deposit.
If you have poor credit and are trying to get a 5% mortgage, being self-employed would be a difficulty. You’d be wanting a larger deposit, ideally.
Again, it’s about doing your homework and going to an advisor early. We would contact the different lenders, explain the situation and get a Decision in Principle. Then we know which lender is going to be a viable opportunity for you and how much deposit you need to put down. We’ll see what the rates are likely to look like and whether it is even feasible.
It’s not impossible – I’ve done it several times. It just requires a little bit more work and preparation. You don’t want to be putting in an offer on a house before you’ve got that. preparation done, especially if you’ve got poor credit.
How do lenders calculate someone’s income as a self-employed First Time Buyer?
They would look at your last year’s accounts if you’re a company director, and your SA302s if you are a sole trader. So they’re always looking a year behind, because the information is from last year’s accounts.
If your accountant is aggressively deducting everything it reduces your tax, which is a bonus for most people. But when it comes to getting a mortgage, that approach also reduces your income. It shrinks what lenders can use for your affordability. So a little bit of forward thinking when it comes to your accounts can be a godsend.
How can someone improve their chances of getting a mortgage if they are self-employed and a First Time Buyer?
Make sure your accounts are submitted. We don’t want draft accounts, we need actual submitted accounts. Lenders will go on HMRC and look at your accounts to do their calculations.
Do your homework early – get your Decision in Principle, work out your affordability and how much of a deposit you need to put down. Work out which lenders are most likely going to accept. Get all your documentation ready.
If you use a quality mortgage expert like ourselves, it should all go very smoothly. You’ll be able to get your mortgage offer, complete on the house and move in and you’ll think it was an absolute breeze.
How do I apply for a mortgage as someone who is self-employed and a First Time Buyer?
Mortgage advisors metaphorically hold your hand every step of the way. We foreshadow any issues that will be coming up and we’ll have you ready to deal with them. It’ll be things like getting a quote for a quality solicitor, so that the transaction will be completed quickly.
We’ll talk about the insurance you might need, make sure you have all your documents ready and that they are correct and have the right figures to get the mortgage you need.
We’ll check your credit is where it needs to be – if it’s not, we’ll go to a lender that will accept you on the basis of your credit. We do all of the hard work so you’re not having to spend hours going from one lender to another to another getting rejected and despondent. We’ll give you all that advice and make it straightforward to get your mortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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