“Mortgage” (CC BY 2.0) by Got Credit
Applying for a mortgage can feel like an uphill battle at best and crossing a financial minefield at worst. Even with a clear credit score and some cash in the bank, no applicant is ever guaranteed to get the mortgage they want. When you look at the numbers, the total value of gross mortgage advances in Q1 2019 was 1.4% higher than the same period in 2018. That’s clearly a positive, but it’s important to understand this doesn’t tell the whole story. Basically, if you don’t fit into the standard mould, i.e. you’re young, have bad credit history etc, getting a loan is still tough.
As a small business owner, you may be successful, but you still fall into the atypical category. Even with a solid income and a thriving business, banks have long been wary of self-employed individuals. This doesn’t mean they won’t lend. They will. However, the lending criteria is often slightly tougher to meet and, even when you do, there may be additional hurdles you have to clear. Unfortunately, there are no shortcuts to beating the system. But if you follow the tips below, you could improve your chances of getting a mortgage as a small business owner.
What’s Your Status? :
“Whitespace business cards” (CC BY-SA 2.0) by Jason Bagley
A lender will need to know the type of business you own. In the first instance, they may be interested in the field you’re operating. Although this isn’t always important, there may be issues if you’re industry is considered volatile. Of course, you can’t change the industry you’re in. However, it’s important to understand that this could factor in the lender’s decision-making process.
Additionally, the lender will want to know if you’re a sole trader, in a partnership or a limited company. As a sole trader, everything is on you. When you’re in a partnership, it’s the individual share of your company’s profits that matter. Finally, if you own a limited company, you need to consider salary vs. retained profits.
If you typically choose to retain profits, this can cause difficulties. Therefore, you need to decide where you are with regards to growing your business. If you need to retain profits as part of your long-term plan, it might be worth delaying a mortgage application until you’re able to draw a meaningful salary.
Do Your Research :
Assuming you’re in a position to borrow, any savvy business owner will appreciate the value of market research. Without knowing what’s out there, you’ll never get the best deal. Today, online brokers provide a complete overview of top lenders. For example, services such as Trussle give you a clear insight into RBS mortgage rates and break down the bank’s share of the market, customer service score and more.
Outside of your business, a mortgage is the biggest financial investment you’ll ever make. Therefore, you need to analyse as many variables as possible. Reading reviews, using mortgage calculators and even taking note of the latest headlines will give you a better chance of striking when the time is right.
Have a Hefty Deposit :
It’s arguably the toughest part of the application process simply because it can take the longest. However, if you want a mortgage as a small business owner, you’ll need a sizable deposit. Under current conditions, most lenders want between 10% and 20% of the total value of the property you’re looking to buy. Our tip is to shoot for 25%.
Although there are no rules in this regard, more is always better when you’re self-employed. In reality, applying for a mortgage is simply proving to the lender you’re not a risk. We already know that small business owners can be seen as a greater risk than an office employee. So, the more money you’ve got up front, the better it will be for your risk score. Get this part right, do your research and get your business in order and obtaining a mortgage shouldn’t be a headache.
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