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/