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If like many, you’re wondering how you can get a mortgage as a freelancer without having to quit your craft and return back to full-time employment, you’ve come to the right place.
Throughout the article, we’ve provided some top tips that could help you successfully get a mortgage and we’ve also covered the factors that you should consider before applying.
Improve your accounts
As a freelancer, your income may fluctuate from month to month.
From a lenders point of view, this is risky. If your accounts suggest that some months your cash flow is poor or dramatically lower than other months, your lender may question how you will pay your mortgage.
Because of this, it’s important that your accounts are up to date and that you have evidence that they have been sent to HMRC.
Your accounts need to show that even on months when income is lower, you can still afford to pay your outgoings, on time and in full. This suggests to the lender that you manage your finances well.
Tools to help you prepare your accounts
Discrepancies or miscalculations may raise questions as to how you will manage your finances and more importantly your mortgage payments in the future.
To help you present your accounts accurately, here are some helpful apps to help you improve your invoicing, taxes and expenses.
Get paid on time
Fluctuating income isn’t necessarily always down to workload. Even on months with plenty of work, your income can appear lower because of late payment from clients.
As we know, lenders tend to take a dim view of fluctuating income. So, how can you smooth the payment process to better your books?
Tools to help you get paid
To help ‘remind’ clients to pay you promptly, there are handy apps and tools which can send invoices and reminders automatically.
Useful apps include:
Not only does this save you time on admin but it also helps you get paid on time, suggesting to the lender that your income is reliable and predictable.
Improve your credit score
Lenders want to calculate whether or not you are an appealing borrower. One way they do this is to look at your credit report. Luckily, there are some simple things that you can do to improve it.
- Join the electoral
- Clear outstanding debts
- Avoid payday loans
- Avoid applying for credit and loans within short spaces of time
- Check your report to understand your credit score (You can sign up for free with Check My File, Equifax or Experian)
Avoid applying directly to lenders
It’s always better to know whether you’ll be accepted by a lender beforehand. Applying directly to a lender without knowing the likelihood of approval could result in a credit rejection on your file.
A mortgage broker can do a ‘soft search’ on your behalf which won’t affect your credit score.
Some lenders have strict eligibility criteria for freelancers, so it’s crucial to avoid doing anything that could negatively impact your credit score and hinder your chances of getting a mortgage.
Use a broker
Not only can working with a broker help you to avoid nasty credit rejections but they can also do the research for you.
Running your own business can be challenging enough without the hassle of comparing multiple lenders for a mortgage. A broker who specialises in mortgages for freelancers can do this for you.
They’ll know where the best deals are and can take the time to look through each lender’s terms and conditions to check for any future increases of interest or charges.
Look at alternative lenders
If you have a clean credit history and a sizeable deposit, it may be possible to get a mortgage as a freelancer with a well-known lender or high-street bank.
The reality for most people though, is that they don’t have either of these things. This is a common problem for many freelancers but thankfully, there are lenders who are more open to lend to someone who is self-employed.
As well as this, some lenders simply lack the experience of lending to freelancers which can lead to mortgage offers with high-interest rates.
A niche lender who loans to freelancers often will have a better understanding of your situation and you may find that they are able to offer a more affordable rate.
Points to consider for freelancers
- Most lenders require 3 years of accounts, although there are some that accept 2 years or less.
- If you’re currently in full-time employment and are considering going freelance, think about when you would like to apply for a mortgage. If it is in the next year, it may be worth considering staying in full-time employment until your mortgage application has been approved.
- Some lenders require a larger deposit of up to 30% for freelance applicants which can be difficult to raise.
- Consider alternative routes for raising a larger deposit such as the Government’s Help to Buy Equity loan scheme which loans first-time buyers 20% of the cost of a newly built home. Having a bigger deposit could help you access better interest rates and deals from lenders who previously may not have considered you.
- Applying with a partner or family member could help your application as their income would be considered too.