Mortgages for Self-Employed People: How to Qualify

The good news is that specially-designed mortgages for self-employed people are available, making it possible for small business owners to buy their own homes. But the criteria to meet are slightly different.

There is a general understanding that once the self-employed box is ticked on a mortgage application form that it is destined to be turned down. Actually, this is not true. There are a number of specially-designed mortgages for self-employed people available from lending institutions, though there is different criteria that needs to be considered.

Of course, there are specific difficulties that the self-employed face when applying for mortgages, especially when getting mortgage approval rests so much on income, employment security and employment history. Each of these aspects can be difficult for a self-employed applicant to provide documentation on.

But it is not a death-knell to the chances of securing a mortgage loan. There are some steps to take that can greatly improve the chances of approval, and provide self-employed individuals with a way to buy their own home.

Addressing the Problems 

The core problem when trying to get mortgages for self-employed people is in being able to convince the lender that the income is sufficient to cover mortgage repayments every month over the 25 or 30 years of the life of the loan. The reason that is such a problem is down to the lack of stability in the job, the uncertainty surrounding the long-term employment future, and the salary structure.

Lenders need to know that the salary will not fluctuate from month to month, and so be assured that the payments will be made on time. Getting mortgage approval can come down to something that simple, but there are loan packages that take this difficulty into account.

They tend to look instead at how the applicant has managed their finances.

But this does not have to mean a more complicated application process. In fact, in many cases applying for a mortgage loan like this requires less documentation, and sometimes even none. This gives rise to their nicknames - No Doc and Low Doc loans.

Applying for the Mortgage

The reason why mortgages for self-employed people might require less documentation is that the information required is quite focused. For example, while normal applications can require statements from employers, bank statements, proof of income and of employment security, as a business owner, there is no need for some much documentation.

Often, the only documentation needed are bank statements to establish an income history and a credit check to establish a credit history. Once these are confirmed to the satisfaction of the lender, then getting mortgage approval is made much easier. However, there are terms that need to be accepted too.

For a start, the interest charged on these mortgage loans is higher than normal, in order to allow the lender to cover the perceived level of risk they are accepting. However, given the chance to secure a mortgage at all, the extra expense is usually worth it.

Finding a Lender

Finding the right lender can mean serious savings, but it will require some effort. Some lenders do offer mortgages for self-employed people but with the higher interest rates and, often, a limit percentage of the purchase price.

While most mortgage providers will provide 90% of the property value normally, in these cases, the share may be reduced to 75% or 80%. This means that getting mortgage approval is only possible by providing a larger down payment.

Another alternative is to agree a financial deal directly with the seller, leaving it up to them to arrange financing. There are also some private lenders that can arrange mortgage loans on behalf of their clients. As self-employed applicants, it does mean higher rates but arguably better when compared to those offered by traditional lenders, like banks.



ABOUT THE AUTHOR 

 Donna Hammond is the author of this article. For more information about Bad Credit Motorcycle Loans and RV Loans for Poor Credit please visit her website at http://www.quickbadcreditloans.com/

Mortgages for Bad Credit Borrowers: Know Your Priorities

Buying a home is never cheap, especially with bad credit affecting interest rates. But while mortgages for bad credit borrowers might be expensive, the motivations behind the transaction can make it worthwhile.

It is not easy to secure a mortgage when bad credit is a big aspect of the equation. Unfortunately, lenders are not willing to simply ignore the past financial activities of an applicant, as some are willing to do when it comes to personal loans. A mortgage is too large an investment, and so applications for mortgages for bad credit borrowers are more thoroughly checked.

But that is not to say that buying a home is impossible for such applicants. The fact is that bad credit mortgage approvals do exist, though the terms may not be the most ideal and, over time, can be considered quite expensive.

What is important to remember, however, is that getting mortgage loans approved with bad credit does require some compromise, not least with regards to the interest rate charged by the lender. Sub prime lenders, for example, are more likely to approve such mortgages than banks, but will charge more. But the motivation behind such loans can make the extra expense worth it.

Own Your Home 

The basic motivation behind seeking the mortgage is to own your own home. It is a luxury we all want to enjoy, but in the case of mortgages for bad credit borrowers, such a luxury comes that little but harder. The terms of a mortgage are dictated by two things: firstly, the lender; and secondly, the financial status of the borrower.

Lenders have various mortgage loans on offer, with traditional lenders often only agreeing to bad credit mortgage approvals if the borrower accepts higher interest rates. However, the percentage of application rejections is much higher since these lenders prefer to focus on good credit borrowers.

The influence of low credit scores is to set a higher rate of interest, which is why getting mortgage loans approved with bad credit is possible, but expensive. Only after the rate is decided upon can the lender calculate if the applicant can afford the repayments.

Long-Term Options

A second motivation to consider when choosing your lender is future options, and how the small print included in mortgages for bad credit borrowers affect them is important. This relates to the penalties and fees that are added onto the interest rate charged, which can greatly increase the overall expense of the mortgage.

In some cases, early repayment of the mortgage can actually incur a penalty. This can affect the borrower if they ever choose to refinance their mortgage loan, which is a common step to take when the interest rate on the original mortgage is high. So, depending on the small print, bad credit mortgage approval may not be such a blessing.

This is especially important when it comes to borrowing from sub prime lenders. Despite their accessibility, they are famed for their extra fees and charges. It is vital that before getting mortgage loans approved with bad credit these factors are checked out.

Rebuild Your Credit Rating

Finally, one of the biggest motivations is the fact that through mortgage repayments, the credit rating of the borrower can be vastly improved. Mortgages for bad credit borrowers are going to be expensive with sub prime lenders, but many accept this because they can start to rebuild their scores.

And with bad credit mortgage approval comes the ability to get a refinancing loan later on, thus helping to improve the situation further. It may be a long round, of course, but in time the terms will improve.

So, in many ways, getting mortgage loans approved with bad credit is a step on the road to financial recovery.



ABOUT THE AUTHOR 

Mark Venite is the author of this article and a successful financial advisor with 20 years of experience. He helps people to get approved for Bad Credit Personal Loans for 5000 and Bad Credit Student Loans Guaranteed. For more information about his services please visit him at http://www.accessmyloan.com