As a contractor, freelancer, or business owner, getting a mortgage can prove challenging. So to help you get mortgage ready, we've decided to team up with an expert. Meet Dale Parry, a mortgage expert from specialist broker CMME.
For many people, one of the main advantages of working for yourself is the flexibility it offers to manage your own time and achieve your goals. But unfortunately, the traditional mortgage process hasn't quite caught up with this revolution. When your income is a bit more complex than the traditional annual salary it can make getting approved for a mortgage slightly more challenging.
So we decided to ask an expert for his top tips. Meet Dale Parry, a senior mortgage expert at CMME, an online mortgage broker specialising in complex incomes. Dale has years of experience and a unique understanding of getting a mortgage when you're self-employed. His top tips will help you get in the best financial shape possible, which is even more important when your income is going to be under more scrutiny than normal.
1. Start saving
You're going to need a minimum deposit of 5% of the property value to get accepted for a mortgage. But the bigger your deposit, the better. If you are putting in a larger deposit, it means you'll have a smaller mortgage, this makes you less risky than a borrower with only a small deposit (and a larger loan as a result). This means you'll enjoy a smaller rate of interest, which means lower monthly repayments.
Don't forget, you’ll need to allow for additional costs involved when purchasing a property such as stamp duty, solicitor fees, mortgage product/application fees, property surveyor fees.
2. Get to grips with your credit report
Your credit report is a detailed record of your borrowing history. All mortgage lenders will look at yours when they are deciding whether or not to accept your mortgage application, so it's a good idea to understand what they'll be looking for.
If the information in your credit report suggests you've struggled to repay credit in the past, you may appear risky to lenders. So chances are you could be offered less favourable terms on your mortgage, or get turned down altogether. Conversely, a better credit history makes it likelier that you’ll get accepted and get a good deal.
Checking your report early in the process means you’ll have the chance to improve it and fix any discrepancies on your report. Login to ClearScore to check your report.
3. If you’re able to, pay off any unsecured loans and credit cards
When you make your mortgage application lenders will look at all your current outgoing in order to determine how easily you'll be able to afford the mortgage payments. It might be worth using some of your savings to pay down these debts, as they will impact your borrowing potential if you still have them when you make an application.
4. Get your paperwork together
Being able to provide supporting documentation to the mortgage lender in a timely manner is critical to a successful application. And it's particularly important to gather the right information when you're self-employed to make sure you're giving the lender an accurate view of your finances.
Typical requirements include; ID and proof of address, so, ensure your passport and driving licence are correct and in date. Income evidence and proof of financial readiness are also key, and you will likely need to provide a combination of the following - P60, 2-3 months of bank statements, payslips or 2-3 years of company accounts/SA302’s.
If you are a contractor, make sure your CV is up to date as it may be used to prove your skills and experience. You will also need to obtain a copy of your current contract as this will be used to demonstrate your earnings. Using both documents you may be able to avoid any issues to do with affordability.
5. Do your homework
With the increasing number of banks and mortgage lenders in the UK, there are thousands of mortgage deals to choose from, so ensure you take time to understand the different options. Using a mortgage broker can help you determine the most suitable options. Moreover, if you’re self-employed or contracting, lenders do not always take a holistic view of your income or borrowing potential and a specialist broker can help you present your case to secure the best deal for you.