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Traditionally it is a lot harder for a self employed person to obtain a mortgage than it is for an employed person. This is because a mortgage lender generally prefers to see a regular income that is guaranteed by a form of employment. Although in recent years this has changed.
While there are an increasing amount of mortgage lenders who deal with mainly the self employed, there are now a lot more lenders who are considering doing the same.
If an individual has been involved with a specific industry for a number of years this would be a huge advantage to them.
Mortgage Lenders are mainly interested in noticing how employable an individual is. In other words how much regular work the individual has. For example a plumber is more than likely to have more work than a flourishing film director. This is because they are able to show a regular, weekly income, whereas a film director may only have a few months worth of work now and then which could look more patchy.
If an individual is new to their area of business, it could prove to be a problem until they are able to demonstrate a regular income.
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If they are on a "short term contract" it would be more beneficial to them if they are able to show that they have a recurring contract with the constant employer. The longer the contract lasts, the better it would be for them. Some mortgage lenders may require a pattern of contract renewals over a period of one or maybe two-years.
The amount of money that a borrower would be able to borrow for their mortgage would really depend on how much they earn and the cost of the property they are looking to purchase.
A lot of lenders will lend an amount of up to 75% of this property value, whereas others may loan an amount up to 90 or even 95%. In some cases, the lender will consider a loan for up to 100% of the property value but the borrower will normally have to pay extra charges for interest and may also need to purchase mortgage indemnity insurance. This insurance only covers the lender if the borrower cannot repay the mortgage loan. It does not cover the borrower. It is normally compulsory to have especially if the loan amount for the mortgage is higher than 95%. This can cause serious problems for first time buyers.
A few mortgage lenders will charge it on top of a mortgage loan of 80% of the property value, whereas others will not charge it at all.
The point of having this insurance is that if the borrower cannot keep up their mortgage repayments and their property is repossessed and sold for a lot less than the money that is still owed for the mortgage, the mortgage lender will be insured against this loss. The problem is that the insurer could still be allowed to claim this loss from the borrower many years later.
The amount of mortgage that someone can get and the easiness of obtaining it will depend on a few factors. If they have a regular form of income as well as a clean credit record they are very likely to obtain the loan quite easily. The amount they can borrow will change with each mortgage lender; however the main rule is that the loan amount is around three times the borrowers’ yearly income. Other variations would include 2.5 times both applicants yearly incomes (joint mortgage), 3 – 3.5 times the highest income and 1 year of the other income.
An important point to consider is that the amount of money the borrower is offered is not always what they can afford. They may be offered a mortgage which uses all of their spare money each month which of course will not leave any spare money for other costs such as fees for purchasing the property and the normal day to day bills like water rates etc…
A few mortgage lenders would also want to check the borrowers general outgoings such as their household bills, loans etc… They would do this prior to offering a mortgage amount so that they could be certain the borrower can afford to make the repayments.
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