How to get a Mortgage if you are Self Employed

If you are self-employed or working in your own startup and looking to purchase a home, the mortgage application process will be the same as it would be for anyone else. Like any application, mortgage providers will look at your credit score, your level of debt, any assets you may have and your income.

That said, mortgage providers are unable to approach an employer to verify your income and employment history in the same way that they would with an applicant who is not self-employed. Therefore, the difficulty when applying for a mortgage as someone who is self-employed comes from verifying your income and providing the necessary documentation.

How can you qualify for a mortgage when you are self-employed?

If you are looking for a mortgage or to get a loan as someone who is self-employed, you can still get a mortgage; however, it may be more difficult to prove your employment history. Those who are self-employed are no stranger to keeping track of their personal finances and organising their job records so demonstrating employment history to a mortgage provider should not be too much of a stretch.

Is it difficult to get a mortgage if you are self-employed?

Self-employed individuals are still able to secure a mortgage, although the process can be difficult. In general, lenders have the attitude that self-employed people are a bigger risk because they have a “non-standard” income and might be more financially volatile.

It can be frustrating for those who are self-employed because, even though they may have the income level and enough savings to make them a valid option for meeting mortgage payments and paying a high deposit, they could be refused a mortgage simploy for not having a ‘standard’ form of income.

However, if you have the right documentation and know what to expect, there is no reason why you should not be able to successfully secure a mortgage.

What are mortgage lenders looking for?

Before considering you for a mortgage, mortgage lenders will typically ask you for proof of the following things:

  • Your income stability
  • The financial robustness of your business
  • Where your self-employment is based and what your self-employment looks like
  • Future prospects of your self-employment

Are there certain documents you need to provide?

In order to begin the home buying process, you will need to be able to demonstrate a consistent history of self-employment income with no breaks - usually for a minimum of two years. Depending on the mortgage provider, they may ask for the following documents:

  • Employment verification

Employment verification is a way of proving that you are actually self-employed and earning money. This could be presented in various forms, such as a emails or letters, and can including things such as:
- a current client list
- proof that you have a personal accountant
- any professional organisation that can confirm your membership
- any business licence that you may hold
- proof that you take out insurance for your business

  • Income verification

When you are self-employed, it is not enough to just prove that you are self-employed. You will also need to demonstrate that you are actually earning money. For this, you will need to demonstrate that you have a form of steady income; however, any gaps in your earnings may affect your ability to be approved for a mortgage. Your lender may ask for any of the following:

- personal tax returns
- profit and loss statements
- bank statements

Can you still get a mortgage if you have been self-employed for less than 2 years?

It is still possible to get a mortgage on your home if you have been self-employed for less than two years; however, if your business has been active for less than 12 consecutive months, you may struggle (see for more information on this).

Regardless of whether you have been self-employed for less than 2 years, you will need to be able to verify the last two years of employment (both self-employment and non-self employment) and making your tax digital can certainly be helpful for this.

In this situation, a lender may look at other factors to verify your creditworthiness such as a thorough look at your training and education to evaluate your future earning prospects.

Tips on how to gain mortgage approval if you are self-employed

There are certain things you can do as a self-employed mortgage applicant to get your application in the best shape before applying and maximise your chances of approval.

  1. Manage your credit effectively

Whether you are self-employed or not, lenders will always look at your credit history and specifically your ability to meet debt repayments in a timely manner. Thus, you should always make sure that you are meeting payments on time and, where possible, paying off balances in full. All of these will lead to a higher credit score and put you in a more favourable position to be approved for a mortgage.

Also, if you are spending only a small proportion of your available credit, this is a good indication that you are reliable with money and living within your means. This credit utilisation is something that lenders will look like and, ideally, should not be exceeding 30%.

  1. Keep your debt-to-income ratio in check

Your debt-to-income ratio is the amount of your gross monthly income that is spent paying off your monthly debts. If this ratio is low, it is a good sign for lenders as it means you can comfortably afford to make mortgage payments on top of your existing financial obligations.

Debt-to-income ratio can be calculated by dividing your monthly recurring debt by your monthly income (pre-taxes). This ratio only takes into account fixed bills, rather than fluctuating monthly bills like groceries and utilities. Before applying for a mortgage, you should try to ensure that your debt-to-income ratio is lower than 50% to maximise your chances of approval.

  1. Separate business expenses

Any business purchases made, such as office supplies or work equipment, should be paid for out of a separate business account or with a business card. If you make these purchases on your personal credit card, you will increase your credit utilisation and it will present an inaccurate picture of your financial situation.