Don't let mortgage worries dampen your Entrepreneurial Dreams
Succeeding as an entrepreneur takes a lot of hard work and self-discipline. Yet the rewards for succeeding are hard to quantify. There's something uniquely special about working for yourself – whether as a freelancer, a sole trader, or a small business owner or director.
Those of us who have made lives as entrepreneurs fully understand all the risks and rewards. We also know about fear. It is normal to worry about all of the potential hazards of being self-employed to the extent that you allow your fear to dampen your entrepreneurial dreams. The goal of this post is to encourage you not to let the fear win.
A good case in point is getting a mortgage. It used to be that the self-employed could go to a lender seeking a self-certification mortgage in order to buy a home. Self-certification (self-cert) mortgages were outlawed years ago in response to the financial and housing crash of the late 2000s.
How Self-Cert Mortgages Work
A self-cert mortgage is one that allows you to make an application without having to prove your income through a multitude of documents you cannot produce as a self-employed individual. You simply declare your income and certify, via your signature, that you are being truthful and accurate.
UK law no longer allows them out of concerns that lenders are too willing to give mortgages to people who cannot truly afford them. You can get self-cert mortgages elsewhere in Europe but doing so is not wise. Any time you take on a mortgage from a private lender outside the UK you are also taking unnecessary risks and making life harder on yourself.
So, are there self-certification mortgage alternatives? Absolutely. There are plenty of ways to get a conventional mortgage as an entrepreneur. You do not have to deny yourself the privilege of owning a house just because you don't follow the conventional employment model.
You Must Prove Your Income
Even though the government banned self-cert mortgages back in 2011, they did not ban self-employed people from getting mortgages. This is an important distinction every entrepreneur should remember. All the ban did was prevent lenders from approving mortgages without documentation verifying their income. That's it.
As an entrepreneur, however, you should know there are other ways to prove your income. After all, you do keep records of your business transactions, don't you?
The easiest way for self-employed people to prove their income is to furnish their mortgage broker or lender with a copy of their self-assessment tax forms. If you are declaring £50,000 annually to the taxman, it's a pretty safe bet that £50,000 is your minimum income. Few people would exaggerate their income and pay more taxes.
Banks and mortgage brokers can look at other documents as well:
· PAYE statements from part-time work
· Investment income statements
· Records of rental income
· Records of government benefits
· Statements outlining dividend and/or pension income
· Annual profit and loss statements.
As you can see, there are lots of ways to demonstrate your income when applying for a mortgage. The key here is to keep complete and accurate records. Keep those records for many years. The more documents you have behind you, the more likely you are to satisfy your bank or mortgage broker.
Time is Your Friend
The one instance in which self-employed people have difficulty getting a mortgage is in the first year or two of trading. If you are just starting out, you do not have enough history behind your business to demonstrate adequate income. The best strategy here is to just hold off on buying a house until you have at least a few years of trading under your belt. During that time, be diligent about keeping detailed records. Also, be diligent about paying your taxes.
In the meantime, there are other things you can do to set yourself up for mortgage approval. First and foremost is to maintain a good credit history. This starts with making sure you pay all of your bills on time. Do not fall behind on any of them. This is especially important where bills related to your business are concerned.
Remember that as an entrepreneur, your mortgage broker or lender will be scrutinising your business records during the loan approval process. The last thing they want to see are business debts that have gone neglected. So make sure you keep up on all your accounts.
With a few years under your belt and enough documentation to prove your success as an entrepreneur, you should have no trouble getting a mortgage. The fact is you do not need a self-cert mortgage. Furthermore, you don't have to let mortgage fears dampen your entrepreneurial dreams. Go do what you want to do with the knowledge that you have just as many options for getting a mortgage as anyone else.