Self-Employed? Here’s what to watch out for with your Mortgage Application
Whether you’re a First Time Buyer, you’re trading up, or switching mortgage, there are a few extra things to watch out for if you’re also self-employed.
More information will be required about income, and how your business is performing. If you’re self-employed, here are some tips to help you get prepared.
Proof of Identity & Address
Proof of identity
Your broker or lender will have to confirm your identity. This will require you to bring your passport or driver’s licence with you. If this is a joint mortgage application both borrowers will have to provide proof of identity.
Make sure to have printed scans of whatever form of identity you are using. This will have to go with the physical paper application.
Proof of address
Bring your most recent utility bill / phone bill with you or a printed bank statement (screen grabs or mini statements are not accepted).
Make sure you have proof of address for both applicants. If you are currently renting, a copy of your lease will also work as proof of address.
Proof of Income
You’ll need 3 years of financial accounts, certified by an accountant. 3rd Party Certification of your accounts is a strict requirement.
If you’ve only recently started your own business, this will be a delay for you. Unless your partner is capable of servicing the loan themselves in full, without your income, the lender will require that you wait to apply.
You need 3 years of Revenue Notices of Assessment, together with your Tax Clearance confirmation.
Make Friends With Your Accountant
Your business may be going wonderfully, but if all figures aren’t correctly recorded, you can’t prove to a lender that you can service the loan.
Protect Your Income
If you’re the sole earner, or simple the highest earner, take out an income protection policy. This could show a lender that your willing to protect your self-employed income, and by default, their loan. As you’re self-employed, insuring your income in case of your illness, together with appropriate business insurance, will protect you, as the main asset of your company.
Do you have any other sources of income? (This could be rental income from other property, in which case you’ll need a deposit of at least 20%, as you won’t be a First Time Buyer. This will be the case even with joint applicants, where only one has previously owned property.)
Income from a pension or social welfare payment.
Income from trusts or shares.
Any income from rental properties you may own. Make sure you’re declaring this income correctly for tax purposes.
Original full bank statements for all bank accounts held in your name. You will need at least the last 12 months of accounts.
You also need to provide full accounts for your business. While you’re preparing your application, tidy up your business accounts. Make sure that personal and professional purchases come from separate accounts.
These must be the full printed account statements from each bank. Mini-statements are not acceptable. These can take a couple of weeks to receive from your bank so order them in plenty of time, or ensure that you can print the pdfs at home.
Your mortgage broker/lender needs these statements to see the pattern of income, spending and saving.
Savings & Spending
It is really important to show regular savings of the same amount every week/month. An ability to show significant savings and an ability to budget is very important to lenders.
Even if you have 50% of the purchase price, if you don’t have a clear history of responsible spending and regular saving it will make it harder to get your mortgage application approved.
Debts & Credit Cards
Do you have any personal debt? – Clear it ASAP! Credit Card balances, loans, and Hire-Purchase agreements can prevent you from being offered a mortgage by lenders.
If you’re still a year away from applying, make sure you’re servicing your loans. The lenders will look at your repayment history to show that you are capable of making the repayments on a mortgage. You can check your credit history for free on www.icb.ie
Loans – details on any loans that you currently have. For first time buyers these are normally car loans. If you are thinking about buying a home, don’t upgrade your car until after you have bought your home.
Credit Cards – If you have any money owed on your credit card, clear it now. Even if this means reducing your Property deposit amount. Not paying your credit card in full every month is a clear sign of not being able to live within your means
Hire purchase agreements – It’s important to try not to have any current hire purchase agreements. It is another signal to your lender that you may have issues saving and living within your means.
Where’s your deposit coming from?
If it’s your savings, make sure this is included in your financial statements, and put in the full 12 months. This will show the lender that you’ve built your savings.
Fixed Term Deposit Account
If you’ve been using a deposit account with a fixed term, bear in mind that you can’t use this deposit until you have access to these funds. If your savings account will only give you access in 5 months time, that’s when you can start your applications.
Have you received your deposit as a gift?
You’ll need to show where it’s come from. This means a template letter from your gifter, and proof of where their funds have come from, in addition to proof that you’ve received them.
It’s not enough to show a large sum in one of your accounts if you can’t show where it came from. Thinking about this now will save a headache later on. If you are receiving any part of your deposit as a gift you will need a letter from the gifter (normally a parent or relative) stating:
- Amount being gifted.
- Stating the gifter has no beneficial interest in the property. (i.e. the amount of money been given cannot be turned into a loan).
- Bank Statement showing the funds in the gifter’s account and showing the transfer to the mortgage applicant.
- Your bank statement showing receipt of the funds (this should be part of your financial statements).
Meet your lender / mortgage broker
Have you gone to meet with your Lender/Broker yet?
Make sure you received the Terms of Business from them. Did your Lender/Broker give you a list of the information you’ll need to provide?
Bring a list of any questions that you have. Go through them with your Lender/Broker so you fully understand the mortgage application process and what you are required to provide.
Bear in mind that the mortgage application process can be a long one. You may be asked to provide additional information and documentation. Don’t get your hopes up, and get your heart set on properties until you have approval in principle. This can save heartache and distress on the path to your new home.