Applying for a mortgage with another person is ideal for maximising your borrowing potential, enabling you to buy a property that you wouldn’t otherwise be able to afford. However, you may be worried about your eligibility for a joint mortgage when one applicant is self-employed.
Can you get a joint mortgage when one applicant is self-employed?
When applying for any mortgage, you need to pass the lender’s affordability checks and prove that you are creditworthy. With a joint mortgage, this applies to both applicants.
The difference between you is in the documentation you need to provide to prove your income. This can be more involved for the self-employed applicant due to having a complex income structure, which increases the risk for the lender. With adequate preparation, however, and expert guidance from a mortgage broker specialising in loans for self-employed applicants, there’s no reason why you shouldn’t be approved for a joint mortgage.
What lenders look for with self-employed applicants
Different from a salaried employee who has a predictable income, a self-employed applicant has an irregular income structure. They can be paid in varying amounts at irregular intervals and via different methods. They may even be paid in foreign currencies. As such, the lack of stability increases the risk from the lender’s point of view. The eligibility criteria for a mortgage are, therefore, more stringent than for an applicant who’s in full-time employment.
Documentation for an employed applicant
Lenders’ requirements vary but a salaried employee usually needs to provide their most recent payslips and P60s as well as evidence of any commission, overtime or bonuses received if these aren’t detailed on the payslips. The last 3 to 6 months of bank statements are also usually required.
Documentation for a self-employed applicant
For a self-employed applicant, 2 to 3 years of certified accounts are generally required, although some lenders are willing to accept 1 year of accounts with a projection. SA302 forms for the last 2 to 3 years must be provided or a tax overview from HMRC. Again, some lenders can accept an SA302 form for 1 year. Bank statements are also required and if the applicant is a self-employed contractor or freelancer, then additional paperwork is needed, such as copies of contracts.
Credit rating
With both applicants, it’s important to have a good credit history. This shows the lender that you’re capable of managing your finances. If need be, try to improve your credit score before applying, such as by reducing outstanding debts, ensuring that payments are made on time and avoiding new credit applications.
How much can you borrow when one applicant is self-employed?
When applying for a joint mortgage, both of your incomes are taken into account, which increases the amount you can borrow. The lender uses a multiplier when calculating how much you can borrow, such as 4.5 times your income. This varies between lenders, with some using a lower multiplier and others using a higher one, depending on the strength of your application.
For the applicant in full-time employment, this is a simple calculation based on the annual salary. For the self-employed applicant, the calculation depends on the self-employed status. In general, for a contractor, the annualised contract rate is used. For a sole trader, an average is taken of the last 2 or 3 years’ income. For a limited company director, an average of the last 2 or 3 years’ salary plus dividends is taken, although the retained profit may be considered instead.
Do you need to pay a bigger deposit if one applicant is self-employed?
You don’t need to pay a larger deposit just because one of you is self-employed. Lenders generally require a 5% to 10% deposit. As you’re applying for a mortgage together, you can pool your savings to pay a bigger deposit than if you both applied separately.
Having a bigger deposit is beneficial in a couple of ways. First, it means that you don’t need to borrow as much, which lowers the lender’s risk. This makes them more comfortable about offering you a loan, especially when one of you is self-employed. It also opens up more deals with more competitive rates for each additional 5% increment you meet. The best rates become available if you’re able to put down a 40% deposit.
Tips to strengthen your application when you’re self-employed
It’s best to be as prepared as possible before your application is submitted. Keeping good financial records when you’re self-employed helps to strengthen your case. This is because it shows lenders that your income is being sustained.
The longer you’ve been self-employed, the better. Lenders generally prefer you to have been self-employed for 2 years. You can still be approved for a mortgage if you’ve been self-employed for less than this time but your options may be limited.
Having a bigger deposit reduces the risk for the lender, making them more willing to approve your application. You’ll also benefit from a better mortgage rate as a result.
A strong credit score is key to strengthening your application. There are various ways to improve it before you apply and our mortgage brokers can guide you on this. This can take time so we recommend that you check your credit report as early as possible.
Our mortgage brokers can help you if one applicant is self-employed
As specialist mortgage brokers, we know which lenders are more sympathetic to the financial situations of self-employed applicants. As such, having optimised your joint application, it will be presented to the most suitable lender, ensuring a successful outcome. With access to exclusive broker-only deals, you can also rely on the best rate and terms to suit both of your needs when accepting a joint mortgage deal.
To get started on your mortgage journey, give us a call on 01322 907 000. Our expert brokers will listen carefully to your circumstances and mortgage goals, guiding you on the best ways to prepare for your application. They’ll then take you through the process step-by-step, enabling you to benefit from a stress-free and successful mortgage experience.