Tips for Getting a Mortgage When You’re Self-Employed

Traditionally, lenders need to scrutinize the applicant’s income history, their ability to pay on time, and their immediate debts before agreeing to give them a mortgage. This all poses problems for the self-employed because they are so busy, they may not keep regular records of all their finances. And if they are paid in cash, it’s really easy to use that cash to pay their bills, rather than document it as income.

And those people who are self-employed are often in the position that they cannot be 100% sure of their income from month to month. In one month they may make an excellent income, but in the following month they could make very little. This makes the regular repayment of any debt like a mortgage difficult. In fact, it makes lenders a bit dubious about agreeing to a mortgage at all.

So the first thing a borrower must consider is whether he can indeed, pay back any loan he gets. What is the point of getting a mortgage, and then not being able to pay it back? To be considered by a lender, self-employed people are also usually required to have a large deposit.

So to get a mortgage when you are self-employed, you could settle for what is called a low-doc loan. This is basically a loan where you don’t have to provide the documentation proving that you receive a steady income. Nor do you have to provide anything to prove that your credit history is good.

Of course there is a downside; you will have to pay high interest on your loan. You will also have to pay mortgage insurance, so the lender can be sure of getting his returns. Since the lender will usually give a low-doc loan without making sure you can repay it, you need to do the math yourself. If you are not sure you can repay, then you are better off not getting the loan in the first place.

Another option is to apply for a flexible mortgage. While you will be hit with an exorbitant interest rate for the privilege of borrowing this money, you do have one saving factor. You are not required to pay a fixed sum every month. You can pay none, or just a little. Or if you are having a good month, you can pay a lot. And if you’ve paid a big lot in one month, then find yourself strapped or cash the next month, you can borrow your payment back again. It is certainly flexible - the downside of not making regular payments of course, is that you’ll be in debt for a great deal longer than otherwise.