Getting a mortgage when you’re self-employed is a little more complicated than for those in regular employment. That doesn’t mean to say that it’s impossible. Let’s take a look at how to get a mortgage as a freelancer, why the process is more difficult, and what options there are available for freelancers with bad credit.
Why’s it More Difficult for Freelancers to Get a Mortgage?
Not all lenders will approve applications from freelancers, and those that do often offer deals with high-interest rates. Plus, the evidence of income that freelancers have to demonstrate for mortgage applications is much more extensive than for those in regular employment. So why is it so much harder for freelancers to secure a mortgage?
Lenders Consider Income Stability
Mortgage lenders need to know that their loan is going to be paid back, which is why they look at the stability of applicants’ incomes. While someone in regular employment can show payslips to demonstrate a consistent weekly or monthly income, freelancers typically have varied work and income. It’s common to have contracts with several companies at one time and take work as and when it comes. Plus, freelancers aren’t protected by employment laws in the same way that employees are, which means they could face a drop in income in between contracts or see work from regular clients simply dry up.
Lenders, therefore, see freelance income as less stable than that of regular employment. With that instability comes the greater risk that the loan won’t be repaid. This risk could make them unwilling to approve a mortgage at all, or it could mean they make a mortgage offer but with very high-interest rates to compensate for providing a high-risk loan.
Acquiring a Freelancer Mortgage Necessitates a Specialist Broker
Since freelancer mortgages are high-risk for lenders, they’re often declined if not carefully submitted. Specialist mortgage brokers who are experienced in self-employed and freelance mortgage applications can advise on whether a mortgage is likely. They know the market well enough to identify lenders who are open to freelance applications. Plus, they can structure applications in such a way that eases lenders’ concerns about income stability.
There are professional mortgage advisors who specialize in brokering mortgages for people with unique requirements, such as those who are freelancers. They have access to the entire market of lenders in order to find a deal that’s right. Then, they provide support throughout the application process to make sure the lender gets all the right paperwork to maximize the chances of approval.
How Long Do You Need to Be Freelancing Before Getting a Mortgage?
Lenders typically ask freelancers to provide accounts or tax returns for the past three years. Those who are sole traders usually provide an SA302 from HMRC, which is evidence of earnings from income declared via Self Assessment tax returns. Those who structure their work under a limited company need to provide accounts that have been signed off by an accountant.
Sometimes lenders approve freelancers who have just one year of freelance income history. In these cases, contracts for future work can bolster mortgage applications. It’s also easier to secure a mortgage as a freelancer after just one year if only part of your income comes from part-time work and the rest is from regular employment.
Will Bad Credit Affect a Freelancer Mortgage?
Bad credit can make it more difficult for anyone to secure a mortgage, including freelancers. Lenders look into all applicants’ credit history, but if they discover bad credit, they’ll often look in more detail to understand the circumstances. If the bad credit history is very old, it’s easier for lenders to overlook it. If the bad credit came about as a result of unexpected life complications, such as illness or injury, lenders would be more tolerant than if it was due to poor money management.
All this is to say that bad credit doesn’t necessarily make it more difficult to secure a mortgage as a freelancer because lenders look at your credit history and income stability separately. If you have many years of freelance income evidenced, bad credit shouldn’t stop you from getting a mortgage. If you’re not sure how to get a mortgage or if you are a freelancer with bad credit, consult a specialist. An experienced mortgage broker can advise you on how to offset the risk posed by bad credit and introduce you to lenders who are most willing to accept freelancers.
