Freelance mortgage tips: advice for freelancers
Banks, building societies and other credit lenders famously like stability when it comes to people’s jobs and lifestyles. So getting a mortgage while freelancing may not sound like the easiest thing ever.
Online mortgage calculators and chatbots don’t help either, with their supposedly-personalised questionnaires about neat-and-tidy salary amounts and monthly payslips, which don’t allow for any deviation from the standard, fully-employed situation.
We’re here to let you know that it is totally possible to be approved for a mortgage when you’re a freelancer. You’ll just need a little extra preparation, paperwork and perhaps a touch of patience (which might give you a chance to bulk up that deposit a bit more).
Here are some tips and advice for helping you start out on the freelance mortgage journey.
What do you need to get a mortgage as a freelancer?
To get a mortgage as a freelancer, you need to prove to a lender that you’re a safe bet. This means showing that you’ve built up an income stream that’s overall reliable and sustainable, even if it varies month to month.
Most lenders will ask freelancers to show three years’ worth of accounts. So the first thing to do is get these together if you’re thinking about buying a home.
You can present these as a set of accounts (like the ones you’d file for any small business), but often you can also use your tax returns. The accounts need to show your total annual income, – which lenders will usually average out over the three years – and your expenses and outgoings.
Some lenders might be prepared to approve your application with only two years’ worth of accounts, or even less. But it would probably be a good idea to speak to a mortgage broker (like Habito) about this, to make sure you still get the best chance of being approved.
In general, it’s best to use a mortgage broker if you’re freelance
Many high street lenders offer mortgages to freelancers. But it can sometimes be difficult to walk in and find the person who understands their self-employed policies well enough to go beyond the standard “please fill in your payslip amount here” box-ticking approach.
Going with an independent mortgage advisor or broker who can take the time to understand your finances properly before approaching relevant lenders, and then negotiate on your behalf, might be an investment worth making as a freelancer.
Don’t let concerns about mortgage advisor fees stop you. At Habito, for example, we offer completely independent mortgage advice for free to the homebuyer, because we get paid by the lenders when you finalise your agreement and get your mortgage.
Keep your accounts in good order
Of all the tips we can offer you as a prospective freelance homebuyer, this is the big one. Keeping your accounts in good shape makes it much simpler to prove your credibility and income to a mortgage lender in a language they understand.
If the thought of sorting through invoices and double-checking bank balances sounds like your idea of a horror film, you can choose to get some help from an accountant. There are online accounting services you can check out, too.
Many freelancers use their tax returns as their accounts if they don’t have full accounts for their business. Either way, the more you can keep on top of your paperwork throughout the year, the easier you’ll make the mortgage application for yourself. (And for all the rest, there’s Habito of course!)
Maintain a good credit score
Building a good credit score is another way to notch up extra brownie points with lenders if you’re applying for a mortgage as a freelancer. They want to know that you’re responsible about repaying debt. A really useful way to show them that you are is to have a good credit record.
It’s not impossible to get around lower credit scores as a freelancer, but if possible, keep a good credit history if you can. Speak to one of our advisors if you need help with this.
Understand your self-employment status
The term “freelancer” has become a bit of a catch-all term for any person who works for themselves, often in creative fields like design, media production, or writing. But self-employed people work in all sorts of contexts. They can be contractors, sole traders, directors of limited companies, and more.
Each category or “self-employment status” can get assessed for mortgage eligibility slightly differently, so it’s a good idea to understand these different categories and know which one you fit into. For example, a sole trader can be anyone who owns their own business. If you’re a sole trader, you might be able to use future estimates, like net profit projections, to bolster your application, as well as your total income.
If your freelance work is streamlined into one or two long-term contracts, you might gain an advantage by applying for a mortgage as a contractor. Contractors can often use the gross value of their contracts based on the daily or monthly contract rate to calculate their affordability, which can sometimes mean being able to get a slightly higher mortgage.
Basically, knowing your self-employment status means you can gather exactly the right evidence to maximise your chances of being approved to borrow the amount you need.
Wait for the right time before you apply for a mortgage
For freelancers who have been bossing it on their own for decades, supplying three years’ worth of accounts might well be a walk in the park.
Often, however, first-time buyers haven’t been trading as freelancers for three years at the time they want to apply for a mortgage. Or they’re thinking of leaving a full-time job to go freelance soon, but they’re also weighing up buying a house in the near future. What then?
This is where your timing might make a difference. There are some circumstances where “the three year rule” doesn’t apply, but generally, it will. So leaving a job to go freelance just before you want to buy a house could make the mortgage process a bit tougher.
In this case, you might consider staying in employment before your application is approved, and then going freelance afterwards. It’s always a good idea to let your lender know that’s what you intend to do though, so they don’t accuse you of trying to trick them later.
If you’ve been a freelancer for a while but only have one or two years’ worth of accounts and would like to work out your options, get in touch with Habito and one of our experts will help.
Boost your chances with a higher deposit
Alternatively, waiting an extra year for your full set of accounts might give you the advantage of being able to build up your deposit. A larger deposit is like a good credit score: it’s not the main thing a lender will look at when assessing your mortgage eligibility, but it definitely helps.
Giving yourself the time to push that percentage up one or two points might give you the leverage you need to get the deal you really want.
You can get expert advice from the mortgage boffins here at Habito, anytime you need. We’ll make sure you get the right advice for your freelance circumstances, and we’ll also help you find the best mortgage deals out there. As a whole-of-market broker, we can access a range of mortgages that you might not be able to find otherwise, and for free.