Mortgages for Self-Employed People: Approval is Easier Than Many Think

It is generally believed that self-employed loan applicants have a more difficult time getting approval than employees. This makes sense, as the self-employed have little in the way of job security. But with a range of mortgages for self-employed people available, the chances of getting approval on a mortgage application is much higher than many would think.There are some differences to the mortgage application for self-employed applicants. Usually, getting mortgage approval depends on factors like monthly income and job security, but these are aspects that the self-employed can rarely produce concrete documentation on. Businesses fail all the time, and in the current economic climate, this is a real possibility.  But as long as all of the relevant information is in order, and the documentation proving so provided, a lender has very little reason to reject a mortgage loan application. This means that by taking some simple preparatory steps, the chances of securing the mortgage desired is very real indeed.Identify the Potential ProblemsThe first step towards improving your approval chances is to identify the problems that exist with mortgages for self-employed people. Once that is done, then a strategy can be formulated. The core problem, of course, is convincing lenders that current income levels can be at least maintained over the lifetime of the loan.A fluctuating salary means there is little certainty that repayments can be made in the future, therefore getting mortgage approval is going to be more difficult. The good news is that lenders are keenly aware of this situation, so they compromise by looking instead at how finances have been managed by the applicant.What this means is that if your house in in order (so to speak), then a lender can feel more comfortable about your ability to meet repayments. It is important then to ensure that finances ship-shape before applying for a mortgage loan.Key Documentation RequiredThere are some essential documents required for mortgages for self employed people that are not needed for normal mortgages. These relate to business certificates and licenses, and proof that the income and turnover figures provided are up to date and accurate, not works of fiction.A business license is necessary to prove that the self-employed person is actually self-employed, and that their business does exist. Tax returns are necessary to show that the business is operating, but more importantly to show what profits are being made. Getting mortgage approval depends heavily on the likelihood of a sustained income, and a profitable business is the best indication of that.Also, a Notice Of Assessment (NOA) is needed to show that everything is up to date, and your business is not behind on its taxes. If behind, this is a major debt that affects your loan-to-value ratio (LVT). And the LVT determines how large a mortgage loan is needed - 85% of the purchase price, perhaps.Improving the Chances of ApprovalThere are other steps that can be taken to improve the chances of getting approval too. For example, getting your finances in order really means clearing as much existing debt as possible so as to reduce the monthly outgoings. As with any mortgage, mortgages for self employed people depend on sufficient income being free to cover the repayments, and lower outgoings means more income to commit to the mortgage.Also, getting mortgage approval is greatly helped by offering a large down payment. This lowers the size or the mortgage required, or the LTV as mentioned above. So if 20% of a home worth $200,000 is provided, then the mortgage loan minimum is $160,000.