Owning a property and being self-employed is a struggle for many, especially with mortgage lenders being less favourable to those who are in this type of profession. While that is frustrating, there’s no point sitting around sulking. Yes, it might be more of a challenge to own a property as a self-employed individual, but it’s not impossible.
With the right knowledge and know-how, you could find yourself in the position to buy a property in the next year or so. Depending on the savings you have available and your current financial income, getting on the property ladder might be more of a reality than a dream.
Here are some helpful tips and guidance for those who are self-employed and looking to get a property for the first time.
You want to be working ideally for three years self-employed
To get the bad news out of the way, in order to give yourself the best chances of securing a mortgage lender on a property, you’ll want to have three years under your belt. This is because most mortgage lenders will require three years’ worth of tax returns to calculate how much they’re willing to lend you.
The reason why they look down so much on those in self-employment is that the income isn’t always guaranteed. Of course, a person in a full-time job could lose their job and find themselves with a mortgage they can’t pay for.
However, it’s more likely that those in self-employment will have dips in their income over the years, making them more of a risk to the lender than those hired and put on the company books.
To give yourself the best chance of securing a mortgage lender on good terms by having over three years of tax returns.
Prepare your tax calculations ahead of time
To help with your mortgage application, it’s important to prepare all your tax calculations ahead of time. If you do your taxes yourself, then you should be able to find all the relevant tax records needed.
For sole traders, it’ll be your SA032 form. For those with a limited company, you’ll need to show the lender how much you’re earning amount to. Some may have a business partner and mortgage lenders will ask to see proof of your share of profits.
By preparing all of these documents ahead of time, it’s going to save a lot of time when you’re well into the process of buying a home. You don’t want to have your mortgage application slowed down due to delays in getting this information to the mortgage lender. It could, after all, be the difference between securing the property you got your offer accepted on – or not.
Gather information on mortgage requirements
Buying a property for the first time will likely mean there’s not a huge amount of knowledge on the subject. Unless you’re proactive, not every young person in their early twenties will be interested in property ownership let alone saving for a mortgage.
Having all of the information on mortgage requirements will help you find the best deal for your money and to ensure you can comfortably make the payments needed each month. The language used within the world of finance can be a confusing one, so if you have any queries or concerns, it’s worth doing some extra digging.
There’s an answer to everything on the internet after all.
Have a sizeable savings fund ready
Here comes the body blow that you were likely expecting. You’re going to need some savings and a sizeable savings fund at that. It’s not just the deposit that you’ll require to buy a home but money for the stamp duty and the solicitor fees.
Depending on where you want to move though, will influence how much you need to save. Living in a big city is going to be more expensive and less attainable, whereas living somewhere relatively cheap and where the property is a lot less in value, is worth considering.
Of course, there are constraints to this, such as where your loved ones live and where your work is based mainly. However, for many of those who are self-employed, there’s likely a bit more flexibility in this option.
Try to lower your monthly expenditures
It’s hard to cut down and to save more but we’ve all got luxuries that we can sacrifice for the benefit of your future life. Take a look at your monthly expenditures and consider cutting back where you can. Whether that’s cancelling some subscriptions, to budgeting your food shop each week to a certain amount.
There are lots of ways to cut down on day-to-day life when it comes to your finances. You may find it good to challenge yourself to spend as little as possible each day and see how much of a difference that makes to your savings at the end of the month. Always try to put savings aside with every pay packet. It’ll help in the long run whether it’s saving for a home or towards your rainy day fund.
Pay off any and all remaining debts before applying
Before you apply for a mortgage of any kind, make sure that all of your remaining debts are paid. As a self-employed individual, you’re already at a disadvantage with mortgage lenders, so to save yourself from being rejected, ensure any outstanding debt is paid off.
The reason for this is that all mortgage lenders are going to ask you if you have any outstanding debts or dependents. The more debt you have attached to your name, the less money your mortgage lender will be willing to give.
Consider a mortgage with a friend or family member
If you’re someone who is flexible with their property dreams then it might be worth considering a joint venture with a friend or family member. While you may not have full ownership of the property, it does get your foot onto the ladder regardless. Consider it a half step, rather than the full step you were hoping for.
By getting a mortgage with a friend or family member that also wants to get on the property ladder for the first time, it reduces your monthly mortgage payments and gives you more chance of being approved in the first place.
This won’t be a forever situation but it will help you get a property sooner rather than spending more years renting.
Seek professional advice and guidance
There is a lot of information online and through professionals who work in property and finance every day. From this calculator that provides guidance on self-employed mortgages to paying for the advice of a financial advisor.
Seeking out professional advice and guidance is useful because it helps make the best decisions possible for you and your needs.
Don’t give up on your dream of owning a property
While saving and buying a property is a pipe dream for some, it can be a reality for most. Don’t give up on your dream of owning a property, even if it seems out of reach right now. You never know what’s around the corner and with enough perseverance, you can achieve that goal of buying a property.
Start making the plans now, rather than waiting to do it when you’re in a better financial position. By saving now, you’re going to thank yourself later when you manage to successfully put down a deposit for a home.
Becoming a first-time property owner is a great feeling, so with that being said, take these tips on board to help achieve home ownership.