Navigating the Mortgage Maze as a Freelancer

Banks, building societies, and credit lenders are known for their preference for stability when it comes to assessing potential borrowers. This can make securing a mortgage as a freelancer seem daunting. The traditional mortgage application process often revolves around neat salary amounts and consistent monthly payslips—criteria that freelancers may struggle to meet. However, with the right preparation and understanding, it is entirely possible to obtain a mortgage as a freelancer. Here’s how to embark on your freelance mortgage journey.

What Do You Need to Get a Mortgage as a Freelancer?

To convince lenders that you are a reliable borrower, you must demonstrate a stable income stream, even if it fluctuates month to month. Most lenders will require three years’ worth of accounts. Therefore, the first step in your mortgage journey is to gather these documents.

You can present your accounts as a set of financial statements, similar to those filed for small businesses, or use your tax returns. These documents should clearly outline your total annual income, expenses, and outgoings. While some lenders may consider applications with only two years of accounts, consulting a mortgage broker can enhance your chances of approval.

The Value of a Mortgage Broker

Navigating the mortgage landscape can be challenging for freelancers. High street lenders may not always have staff who fully understand the nuances of self-employed policies. Engaging an independent mortgage advisor or broker can be invaluable. They can assess your financial situation comprehensively and negotiate on your behalf.

Don’t let concerns about advisor fees deter you. Many brokers, like Habito, offer free independent mortgage advice, as they are compensated by lenders once your mortgage is finalized.

Keep Your Accounts in Good Order

One of the most crucial tips for freelancers seeking a mortgage is to maintain organized accounts. This simplifies the process of proving your income and credibility to lenders. If managing invoices and bank balances feels overwhelming, consider hiring an accountant or using online accounting services.

Many freelancers utilize their tax returns as their financial records. Regardless of your approach, staying on top of your paperwork throughout the year will ease the mortgage application process.

Maintain a Good Credit Score

A strong credit score can significantly enhance your appeal to lenders. It reflects your responsibility in repaying debts. While it’s possible to secure a mortgage with a lower credit score, striving for a good credit history is advisable. If you need assistance in improving your credit score, consider consulting with a mortgage advisor.

Understand Your Self-Employment Status

The term "freelancer" encompasses a variety of self-employed roles, from contractors to sole traders. Each category may be assessed differently by lenders. Understanding your self-employment status can help you gather the right evidence to maximize your chances of mortgage approval.

For instance, if you are a sole trader, you might be able to use future income projections alongside your current earnings. If you have long-term contracts, applying as a contractor may allow you to leverage the gross value of your contracts to enhance your affordability.

Timing Your Application

Timing can be critical for freelancers. If you’ve been self-employed for several years, providing three years’ worth of accounts may be straightforward. However, first-time buyers or those transitioning from full-time employment to freelancing may face challenges.

If you’re considering leaving a job to freelance, it may be wise to wait until after your mortgage application is approved. Always communicate your intentions to your lender to avoid any misunderstandings.

Boost Your Chances with a Higher Deposit

Waiting to build a larger deposit can also improve your mortgage prospects. A higher deposit can enhance your leverage in negotiations, even if it’s not the primary factor lenders consider. Taking the time to increase your deposit can lead to better mortgage terms.

And Finally…

Securing a mortgage as a freelancer may require extra preparation, but it is entirely achievable. Expert advice from mortgage professionals, such as those at Habito, can guide you through the process, ensuring you receive tailored advice for your unique circumstances. As a whole-of-market broker, they can access a wide range of mortgage options that may not be available otherwise, all at no cost to you.

With the right approach and support, you can turn your freelance dreams into reality and secure the home you desire.