I work for myself. How do I get a mortgage?

I work for myself. How do I get a mortgage?

I was having big problems getting a mortgage to buy my first home about four years ago. If you're going to believe everything I've heard, you've been the perfect candidate for a mortgage - a young, first-time buyer with an annual income of about 30,000. It's easy!

How do I get a mortgage
I work for myself. How do I get a mortgage?

No, it's not easy, actually. As a young man inclined to enjoy myself, I had no savings - nothing I could use as a deposit. But what about these 100% mortgages that you've heard about? Surely I'm qualified? Oh, there was something else - I was also working for my own account without accounts.

An employer with no accounts and no savings.

Can I get a mortgage? It was practically impossible. Not a single High Street lender will give me a mortgage. Even the bank I've been working on for 10 years has rejected me, even though my bank knew exactly how much I earned each year and how much I spent each week, even though my bank knew that paying monthly mortgage repayments wouldn't be a big problem for me.

Then I heard about mortgage certificates.

What is a mortgage? It's basically a mortgage where by which you decide whether you can make payments or not. This is the time when the penny has fallen, because you see that the complete process of applying for a mortgage is based on an institution (such as your bank) that decides whether you are able to make monthly payments or not.

What is the formula for working on that? Well, if you're an employee, that's your salary - the bank will lend you, for example, 3 or 4 times your annual salary. Usually they will ask you for a small deposit, to say 5%, to prove that your intentions are serious.

Obviously, if you work for your own account, especially without accounts, you often don't have an annual salary and you can't prove a regular monthly income. Many self-employed people - especially I - live by hand, and regularly wait for reluctant customers to settle outstanding bills. How can you judge your ability to pay off a mortgage? I discovered that the answer is self-certification - that is, you. You decide whether you borrow a lot of money or not, and whether you will be able to afford monthly repayments or not. After all, if you are smart enough to run your own business, manage your own tax affairs, and handle your purchase and invoices, you are certainly smart enough to know if you can repay your mortgage!

Think about it - traditional salary-based mortgages are judged on the basis of what a person has earned in the past, but a person can be made unemployed within hours of getting a mortgage. On the other hand, self-certification places on you the responsibility of predicting what you will earn in the future. Sure, you may get out of work, but a person who gets paid may lose his job as well.

So I thought, well, that's a good thing, but I bet that a self-certified mortgage is a mortgage tool, with huge interest rates, overwhelming monthly repayments and Guantanemo-style penalties.

But there was something else I discovered about mortgages. Although lenders are sinking down the High Street, there are actually only a very small number of "actual" lenders: the majority are brokers acting on their behalf, because the number of mortgage applications is so large that brokers are required to implement the process of judging each applicant and assessing risk.

So I found out that while a High Street lender would reject me, a smaller lender might accept me. But get this: The mortgage i actually received from the small lender at the end of the day was exactly the same as the mortgage that the High Street lender rejected! Only forum judging my ability to pay the mortgage was different, not the mortgage itself!

So what's the point of self-certification? There is always a problem in my experience, in which case it was a very big catch. While a regular mortgage requires the borrower to contribute to a 5% deposit for example, my self-certification mortgage requires a 15% deposit. Fifteen percent! Of course I can understand why they ask for this, why if you are not judged using the traditional formula it is expected to show some serious commitment. But I had no savings. I was young and working for me because I was crying out loud.

So what did you do? Well, I wouldn't recommend this to everyone, but I desperately needed my house and I knew I could pay the premiums. I got a personal loan shortly before submitting my mortgage application, completed by paying a bill in a timely manner, and managed to pay the deposit and bear the main renovation costs of the property (roof, wiring, plumbing, etc.).

On main street, this is called a "home improvement loan" and is obtained after you get a mortgage and buy the property. I borrowed a little more in the form of a personal loan before I got a mortgage. I was lucky to be able to afford these payments for the foreseeable future and bought in a bullish market - my property was already worth more than the mortgage and personal loan combined before I finished the renovation (i.e. 4 months after i bought the property). I don't recommend this to everyone and you should be very clear about the amount you borrow and what the total repayment will be.

However, climbing the property ladder and owning my home was the most important thing for me, and explaining that if you look beyond the High Street, you can actually find the same financial products or the like but with less trouble. High Street always made me feel inappropriate, and my money failed.

You might be interested to know, since I was still looking for catches in my mortgage, I recently went to a respected and independent financial advisor (on High Street as it happens) and asked if I should change my mortgage to something better. His advice was that I got a very good mortgage deal and that I should stick to it for the foreseeable future. That's why I do.