Self-employed applicants face challenges with mortgages

ByJasmine Watson

Yes, self-employed applicants indeed face several too many challenges when they apply for mortgages. A sequence of different consequences takes place and present different circumstances demanding the solution.

Are you also facing circumstances as a self-employed mortgage applicant????

Here is an explicit mention of challenges frequently a borrower faces and also the solution that relates to them precisely.

Challenge – Proving the type of business

One of the most challenging tasks for an applicant with self-employment is to prove his/her business type. The lender market has more or less similar lists of the kinds of businesses they consider authentic. A businessman who owns a business outside that list has to face many doubts. The mortgage providers can be a bit traditional in their approach to this aspect.

Solution

There are a few things that you can do for a solution and can win a smooth approval.

  • You need to present all the possible legal documents of your business. It helps a lot to prove your business’s authenticity, which in turn helps to convince the lender for mortgage approval.
  • Before you apply, it is better first to ask if it deals in it or not? In place of feeling wrong about a regretful decision later, it is necessary to act carefully in advance.
  • Hire a broker and let it tackle everything. The broking companies have lenders for all situations on their panel. They know which one in the market provides a mortgage for your business type. They explain to you to the mortgage company, which lightens your burden a lot.

Through the right approach, it is not difficult to explain your business type. After all, FinTech has taught the lenders where to keep flexibility.

Challenge – Income assessment

We all know how volatile the income of a self-employed person is. If one month he got a profit the other month he may get lower earning. In such situations, you can understand that it can be difficult for a lender to believe on the repayment capacity. However, a bit of ups and downs in the monthly income is not a big issue, but it certainly gets complicated if there is a considerable change.

Solution

The profit and loss in a business is a thing that cannot be controlled. But on your side, you can try a few things.

  • If the market conditions are healthy, your income should be steady. Make sure you keep all the documents organized in the right format.
  • In case there is any change in the monthly earning, which means if there are ups and downs, then at least future business possibilities should be good. For example – a good number of clients or projects of renowned clients in the coming days and months can help a lot.
  • Keep a certified accountant to manage your business accounts. It is significant to get your financial documents signed by an accountant to prove the reliability. 

Showing your income sources is the best way to facilitate smooth assessment, keep the income steady, and you are the winner.

Challenge – Unforeseen chaos like current conditions like covid-19

The world is frightened by the circumstances that the ubiquitous coronavirus has created all over the world. Besides the loss of precious human life, the pandemic has made an unprecedented loss to the businesses. Many could not bear the trauma, and business persons decided to surrender and close. But many are still trying to face the challenge and with that also want to get a mortgage.

Solution

There should be only a practical suggestion in this situation. With massive destruction after covid-19, it can be challenging to qualify for self-employed mortgages. With spoiled profit margins, huge loss, it is rationally unwise to expect loan approval.

  • If there is a significant loss in your business, the best thing can be to wait and watch for at least 6 months. 
  • Try to get back the lost balance by working hard. Re-start the business, regain customers, attain financial stability, and when things get better, you can think about applying.
  • Arrange additional collateral as an added property in the name of security can change things in your favour. Already the lenders are looking for the applicants with equity as high as 25%.
  • One cannot forget the importance of the deposit amount. Yes, a 10% down payment cannot work, at least take it to 20% – 30%.

The above necessary steps are quite useful and can help change the situation drastically and positively. The lenders want to see stable finances, and the rest of the things can be tackled easily.

You know what….

The list of challenges for a self-employed is long, but one thing is sure. If the applicant is possible to prove strong repaying capacity, complications may turn into favour. However, you cannot always rush eagerly to get a mortgage. Always pay heed to your personal financial situations and business conditions and apply only when things are entirely under control.