What About Contractors Freelancers And The Self
If youre a contractor, freelancer, or youre self-employed, youll face the same affordability assessment as those who are employed.
However, proving your income will be slightly different. After all, if youre self-employed you probably wont be able to provide lenders with payslips like an employee of a company.
Whats more, if youre a contractor, freelancer, or self-employed your income is much more likely to fluctuate every month meaning theres a much higher risk that your income could change significantly, with very little warning.
If youre applying for a mortgage, you can expect the lenders proof-of-income process to be much more comprehensive. Essentially, you will need to be able to provide the documentary evidence as proof that you have a stable financial track record and that youll be able to meet your monthly repayments for the duration of the loan.
Property Use And Type
What works in your favor:
- The house is a detached single-family home to be used as a primary residence.
What complicates an application:
- The property is a duplex or condominium, or will be used as a vacation home or an income rental property.
Note: Complicates doesnt mean impossible. It means you might have to provide more documentation, that the loan decision might take more time, or you might have to pay a higher interest and or fees. In other words, you might face more hurdles and questions than a borrower with a simpler loan application.
How Do Mortgage Applications Work
According to a recent survey by Yopa, almost two thirds of people polled put have been discouraged to move home because of the stress that often comes with it. Considering the fact that a house is likely to be the most expensive purchase most of us will ever make, its perhaps not a surprise that it can cause some anxiety. Although applying for a mortgage can be complex, there are simple steps you can follow to make sure you understand the process and are well prepared. Below, we look at how applying for a mortgage works and what you might need to think about.
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What Assets Do Mortgage Lenders Check
Assets are items you own with a monetary value. This can be cash savings, property or other valuable items like a car, artwork, or jewellery. Mortgage companies will consider any assets you might have when reviewing your application. If you have an emergency, you could use the funds from these assets to pay your mortgage. This makes you look less risky to potential lenders.
Know The Mortgage Basics
Whats a mortgage?
A mortgage is a loan that helps you buy a home. Its actually a contract between you and a lender to lend you money to buy a home. You repay the money based on the agreement you sign. But if you default , the lender has the right to take the property. Not all mortgage loans are the same. This article from the CFPB explains the pros and cons of different types of mortgage loans.
What should I do first to get a mortgage?
How do mortgage brokers work?
A mortgage broker is someone who can help you find a deal with a lender and work out the details of the loan. It might not always be clear if youre dealing with a lender or a broker, so if youre not sure, ask. Consider contacting more than one broker before deciding who to work with or whether to work with a broker at all. Check with the National Multistate Licensing System to see if there have been any disciplinary actions against a broker youre thinking about working with.
A broker can have access to several lenders, so they may be able to give you a wider selection of loan products and terms. Brokers also can save you time by managing the loan approval process. But dont assume theyre getting you the best deal. Compare the terms and conditions of loan offers yourself.
Can I negotiate some of the terms of the mortgage?
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Get Your Approval Letter
Once you find the best mortgage solution for your needs, you can see if youre approved online. If you are, well send you a Prequalified Approval Letter that you can use to begin house hunting. If you want an even stronger approval, you may want to consider contacting a Home Loan Expert and applying for a Verified Approval.
Making Too Many Home Loan Applications
While shopping around is an important part of looking for a home loan, it does not mean that you should apply for multiple lenders. Do not ever go loan-fishing whenever you file an application to a lender, it gets recorded on your credit file. The bad thing is the lenders you applied to will surely notice that you have been submitting applications to other financial institutions.
They might think you got rejected from all your other applications and will be a bit suspicious of your actions. As a result, all these lenders might turn you down.
There is nothing wrong, however, with comparing home loans. The market is teeming with home loan offers, each with its unique advantages and disadvantages. But only a handful will actually meet your needs. It is your role to shop around and see which one best suits your current financial situation. A mortgage broker can help you find the right loan product, but the responsibility of knowing what you need falls on you.
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What Do Mortgage Lenders Check
All mortgage lenders have different lending criteria that they use to assess mortgage applicants. Lending criteria differs from lender to lender, but generally, when lenders review your mortgage application, theyll usually assess the following factors:
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Your income your regular cash flow
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Your credit report theyll prefer a positive credit history
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Your assets anything else which could give you financial stability
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Your deposit how much you can put down up front
Should You Try To Fake An Sa302 Or Payslips
You should never try to fake an SA302 or fake your payslips to get any kind of loan. Because theres been a lot of faking SA302 forms and payslips in the past, mortgage lenders have pretty sophisticated fraud detection nowadays. Its really not worth getting found out and potentially getting a criminal record.
If you did get prosecuted, that wont be good for your overall ability to get credit again in future, so your dream of owning a home would be ruined.
If youre genuinely thinking that faking your income is the only way to get a mortgage, you should definitely speak to a specialist mortgage broker. They will be able to give you expert advice on your case, and will know an HONEST way to make sure you have the best chance possible of getting approved for a mortgage.
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What You Can Do
Before applying for a mortgage, get copies of your reports and read them carefully to determine if there are any errors. If you find inaccurate information, you have the right to dispute each item with the credit bureaus and ask to have it removed from your reports.
You should also obtain your FICO credit scores to determine what range theyre in. If your scores are lower than expected, you can take steps to improve them before you submit your mortgage application.
Improving Your Credit Score Over Time
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How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
Find A Property And Make An Offer
Now comes the best part finding the home thats right for you. To help you with your search, try connecting with a real estate agent in your area when you start viewing properties, especially if youre buying your first home. A real estate agent can help you narrow your search and show you properties that fit both your budget and needs.
Once you find the right home, your real estate agent will also help you submit an offer, and potentially begin negotiating with the seller. Once the seller accepts your offer, its time to move to the final stages of the home buying process.
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What Is The Difference Between Advisor And Execution
Execution-only mortgages are when an individual takes out a mortgage without any help from a financial advisor or a mortgage broker. Because they are making the decision by themselves without independent advice, they will likely have to agree in writing that they are aware of this and any potential consequences if the mortgage turns out to be unsuitable. Because mortgages can be complex, lenders want to be sure that the people they lend money to are fully aware of the risks and responsibilities.
Not Declaring All Your Expenses
Forgetting to mention something like an emergency credit card is also a common problem, and one that can derail an application, says Justin Doobov, managing director of independent mortgage broker Intelligent Finance.
“I have seen some clients not disclose their five credit cards or even expenses relating to their kids when they come to us, Mr Doobov said.
Of course, when we get their bank statements we see all the payments to the various credit card companies, child care expenses and school fee payments for the kids.
“If a lender sees this, it is likely they will decline the loan due to non-disclosure. It’s best to be honest, upfront and get an approval that will be honoured.”
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How To Calculate The Value Of Your Assets
Some assets have a clear value, like cash and stocks. But you may have questions about the actual worth of some of your physical items, like your car, home or artwork. The best way to find out the most current value of these items is to hire an appraiser to review them and determine their value.
You can hire a car, home or art appraiser to view the current condition of your assets so you have an accurate number to report on your loan application. You can also use online appraisal calculators, but keep in mind that these calculators will not be as accurate as hiring a professional.
What Do Mortgage Lenders Look For On Your Credit Reports
What do mortgage lenders look for on credit reports? This is one of the most common questions asked by first-time home buyers. Naturally, your credit score is important, but its not the only factor that determines whether you qualify for a home loan.
Lenders also look for information on your debt-to-income ratio, your payment history and your assets. Keep reading to learn more about how mortgage lenders assess your credit profile.
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Incorrect Details On Application
It is important to disclose all the relevant information you can when you apply for a home loan. If lenders uncover credit cards or other debts during the process that you have not been upfront in disclosing, your loan application may be declined, and questions will likely arise as to whether there are even further debts that havent been disclosed.
While the factors mentioned above can influence a lenders decision to approve you for a loan, none of them is absolutely determinative on its own. If a lender sees you as more of a risk for example, because of your credit history or employment history then your loan application may not be denied, but you may need to be prepared to pay a higher deposit, or you may be approved for a smaller loan amount.
Do Mortgage Companies Check Your Details With Hmrc
Yes, they can. The HMRC Mortgage Verification Scheme is being used more and more by lenders. The scheme aims to tackle mortgage fraud by allowing lenders to contact HMRC and check if the numbers on your application match their records.
However, if you’re a freelancer or contractor, this scheme could cause problems if you use your gross contract rate when applying for a mortgage with a company that doesn’t have the expertise of dealing with contractors. Youll need a specialist mortgage broker if youre looking to apply for a contractor mortgage. For more information on contractor mortgages, have a look at your Mortgages for Contractors page.
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What Is A Mortgage In Principle
A mortgage in principle is a statement from a lender that says they will lend you a specific amount based on the information you have provided. It is not a guarantee, but an indication that they would be willing to lend you the money in principle. It can be used to show estate agents or sellers that you do in fact have the funds to buy a property
Check If Financial Support During The Pandemic Could Dent Your Mortgage Chances
At the start of the pandemic, lenders and the Government introduced various support measures for those struggling financially, such as the furlough scheme and payment holidays on credit cards, loans, payday loans, buy now, pay later products and insurance premiums.
Yet if you’re using one of these schemes or you were but it has since closed, such as furlough this can actually dent your chances of getting a mortgage. In brief:
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What Affects My Eligibility For A Mortgage
Bad credit scores, bad personal finances, low available credit, more debt than income, late payments on rent, and other monthly commitments, can all affect your eligibility. The mortgage broker needs to see a good credit history and positive bank statements to know that you can handle monthly mortgage payments.
They will check your bank accounts to see that you can pay your mortgage repayments without hassle.
Manage Your Current Credit Arrangements
If you have credit facilities on a number of credit cards and do not use them then you should cancel these cards. A lender will think that having too much available credit will be a temptation if things become difficult financially. If you are looking to close a credit card account close the newest account first as having a sound credit record over time will boost your credit rating, read our article – Will cancelling an unused credit card affect my credit score? Do not start any new credit agreements or new credit cards while you are in the process of obtaining a mortgage as this will be taken into account when assessing affordability
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