Having an unusual income when applying for a mortgage has the potential to cause issues. It could even mean you struggle to secure the borrowing you need to buy property, even though you’re confident you could meet the repayments.
Indeed, a report in MoneyAge found that almost three-quarters of business owners believe that self-employment makes it harder for them to get a mortgage. 46% went a step further and said it makes it a “lot more difficult”.
It’s not just self-employment that might affect your ability to secure a mortgage either. Unusual income sources could mean you face a higher interest rate or rejection. So, if you have an income from multiple sources, irregular earnings, or you want to incorporate income from sources like dividends or retained profits, what can you do?
The good news is that an unusual income doesn’t mean it’s impossible to secure a mortgage. Here are six steps you could take to improve your chances of finding a mortgage that suits your needs.
1. Be prepared to offer a higher deposit
Traditionally, buyers put down at least a 10% deposit when buying a home. However, some options require a smaller or even zero deposit.
As your income might be irregular, you might pose a greater risk to a lender as they may perceive you as more likely to default on the mortgage repayments. To offset this, you may be offered a mortgage that requires a higher deposit.
So, if you’re in a position to increase the deposit you’ll put down on a property, your mortgage options could rise.
2. Check your credit report
Checking your credit report is often an important step when taking out a loan, including a mortgage, whether you have an unusual income or not.
A lender will use a credit report to assess how reliable you are and the risk they would be taking by lending to you.
So, get ahead and make sure you’re aware of any potential red flags before you apply for a mortgage. Check your personal and account details are correct. If you have open accounts that you no longer use, closing them could make your credit report more attractive to lenders.
Be sure to check there aren’t any mistakes on your credit report too. According to Which? around a third of people who have checked their credit reports in the last five years have found an error. Mistakes could affect the outcome of your application or delay the process.
3. Get your paperwork in order
Usually, when applying for a mortgage, employees will need to present their last three payslips and bank statements alongside their application.
However, if your income is unusual, you’ll often need to provide additional evidence of your income and outgoings. For example, if you’re self-employed, you might need to provide two years of accounts.
Getting your paperwork in order before you apply could help you assess which lenders might be right for you and minimise delays.
In addition, you might want to prepare evidence of your working relationships. If you have a contract with a company or a pipeline of work, it could reassure lenders that you’ll be able to keep up with the mortgage repayments.
4. Consider the timing of your application
For some people with unusual incomes, the timing of the mortgage application could make a huge difference to the outcome. So, it’s something you might want to think about.
If you know you have a period where you’ll have a steady income or will be working on a long-term project, delaying your application until this point could demonstrate you have a reliable income to lenders.
5. Don’t overlook specialist lenders
There are lots of lenders to choose from, and not all of them have a high street presence. Before applying to your usual bank, taking some time to weigh up the different options could be valuable.
Some lenders specialise in offering loans to people with an unusual income and might be more willing to consider your income from sources like dividends than a traditional bank would. Each lender will have its own criteria for assessing applications, so understanding which ones are most likely to accept your application is important.
Remember, a lender will usually carry out a hard credit check when reviewing your application, which will leave a mark on your credit report for up to two years. Several hard credit checks close together could be a red flag to potential lenders.
6. Contact a mortgage adviser
Navigating the different options and getting the correct paperwork together can be confusing. If you’d like support when applying for a mortgage, an adviser could help.
As a mortgage adviser, we may be able to find lenders that are more likely to accept your application and could potentially secure you a more competitive interest rate than you would receive if you applied directly. Please contact us to talk about your mortgage needs.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
