Mortgage and self employment

Getting a mortgage when you are self employed is not impossible, but it can be very difficult. Most lenders approve loans for employed people because they can predict the salary. With a self employed person, the income may not be constant and therefore lenders won’t be able to tell how much you can make in the monthly payments. Without a constant income, you will struggle before you get a lender willing to approve your loan request. This guide is to help self employed people to learn more about mortgage approval.

How does your business affect your mortgage if you are;

An independent business person

If you work alone, you should know that getting a mortgage loan is going to be hardest for you especially when your business is just starting out. Lenders tend to look at your profits for the previous couple of years, which may not be good if your business is new. If you have a higher profit margin, getting the loan will be easier.

A company                                                                                                                                                                                 

A typical company has different people working in different sections of the business. If you are applying for a personal mortgage, the lenders will look at your income. When applying for a commercial mortgage, they will look at the company’s profits.

A partnership

It defines a business connection between you and one or two other people. For a personal mortgage, the lender will consider your share of the profit while for a partnership they will check all your profits combined.

How to prove your income when you are self employed

You will need to provide the lender with a three year legal document that covers all your work progress. This includes profits, investments and employee payment records. Ensure the documents are correctly written before providing them to the lender. Most lenders do not consider the retained profits as your personal income. You can use these documents to get mortgages from brokers, agencies and private banks.

Qualifications for a mortgage when you are self employed

For a self employed individual, lenders calculate the profits your company has been making for the past several years to determine if you qualify for a mortgage and how much money you can get.  You can only get a mortgage if your business is legally registered.

They also look at the number of years your company has been in business. Most lenders would prefer a company or business that has been running for at least three years. This way, they can predict the income and profits of your business. This is important to determine if you are capable of making the monthly mortgage payments.

Every conventional loan lender will look at your credit report before approving any form of loan application. A good credit report will guarantee you the chance of getting a mortgage. With a poor report, you are likely going to face several rejections or get a lower mortgage with a higher interest rate imposed.

Final word When you are self employed, getting a mortgage approval is twice as hard.  You will have to visit several lenders before you find an approval with the perfect mortgage rates.