There are a lot of misconceptions about getting a mortgage if you’re a freelancer: mainly that it’s not possible. Thankfully this isn’t true, which is just as well, because more people in the UK are choosing to become self-employed. In fact, according to Online Mortgage Advisor, an estimated 14.8% of the working population, nearly 5 million people, are now freelancers and a large percentage of them certainly haven’t let it stop them from buying their dream home. Want to join them? These tips are a good place to start…
Work out how much you can afford
You’ll need to start by doing the sums! The basic principle is that you’ll be taking out a mortgage proportionate to your ‘salary’, so it may be a mortgage that’s 3x, 4x, 4.5x, 5x your salary. Work out how much you earn and multiply it by these different multiples to see what you can afford – though it’s just an indication. Interest rates and your monthly outgoings will also matter. A mortgage calculator can give you a more accurate estimation.
Save for a deposit
The bigger the deposit you have, the stronger your case is to the lender, so it’s important that as a freelancer you have a decent deposit. For a start, it shows a lender that you’re careful with money, which proves you’re capable of managing a mortgage.
Speak to a freelance mortgage specialist
Friends and family may recommend mortgage brokers that have assisted them, but it doesn’t mean they’re right for you. You need someone who’s experienced in freelance mortgages. An easy way is to use a service like Online Mortgage Advisor, who specialises in matching people with mortgage experts.
Know your financial history
It will take you at least six months to know how much you’re earning. Lenders, on the other hand, may want to see three years of accounts – but that’s a ‘may want.’ Though it’s common, there are lenders who’ll accept a minimum of a year and maybe less. The key thing you need to show is that you have a steady, monthly income that doesn’t fluctuate too much, so you can afford the payments.
Understand the criteria
All mortgage applications are assessed on criteria. Alongside deposit and earnings there are other criteria that lenders will be looking for: here’s some of them:
Lenders will look at whether you’re a Sole Trader, Contractor or Ltd company owner. What you choose to freelance in is your choice, but lenders like to see solid income from specific sources rather than jumping between short contracts.
Every lender operates an age criterion, which varies, as this shows them that you’ll be in a position to pay them back. If you’re over 50 for example, and you want a 20-year mortgage, you may have retired before the mortgage is paid off, so you may only be offered a 10-year one.
Typically lenders want evidence that you have a high credit score but this isn’t always possible to obtain until you’re on the property ladder. You can improve your chances by paying bills on time and not changing address too often. If you have a history of bad credit (due to bankruptcy or paying your credit card bills late), getting a mortgage will be harder, but it’s not impossible.
Breaks in earning
Lenders will notice if you take breaks from work, for example, if you have a history of illness or you have maternity leave coming up, they will class these as times you’ll be earning less (or nothing), which makes the mortgage high risk. So you’ll need to show them how you’ll cover your mortgage during these times.
Considering a joint mortgage?
If you’re a freelancer and you’re applying with someone who’s employed you need to show you’re not a dependent and will be paying your share of the mortgage, in which case all the above considerations apply.
What if you get turned down?
Try again! Getting turned down isn’t an indication that you won’t ever get approved, it could just be that the lender’s criteria didn’t match your situation, in which case apply to another one. Freelancers are considered riskier to lenders but as long as you can prove to them you can pay back their loan, you should find a lender that says yes.
So, if you know you want to take out a mortgage soon, or in the next couple of years, start taking the appropriate measures now. Try improving your credit score, get saving for a deposit and organise your accounts as it all helps further down the line…and there’s no time like the present to get cracking!