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Within three months time we will have ourselves our first little baby ánd bought ourselves an amazing house - or at least, that's the plan. A great plan ofcourse, but also a plan that raised a few hard questions... Would I be able to get a mortgage, being self-employed?
When the owner of our rental property told us that she would like to put it up for sale in the new year and had us as the first choice for potential buyers, we immediately said 'yes'! But this of course meant that, in addition to the fact that we have a small baby at home this Christmas, we also had to arrange a mortgage urgently. Where we actually planned to buy a house around June 2020, we now had to arrange it all in just under 3 months: all with a large, pregnant belly.
Now that we have started the process, I know exactly what is expected from a freelancer when it comes to a mortgage - and also what the possible stumbling blocks and possibilities are. Although we are still in the middle of our process, I can tell you that it already looks incredibly positive and I would like to share my experiences (and learning moments) with you!
1. Can you take out a mortgage as a self-employed person?
The simple answer is: yes. But this depends on a good number of factors. For example, first a good look at your financial situation and it is often expected that you can show at least 3 years of administration. Don't you have this? Not to be afraid: I have only had 1 year of full-time papers (the other years I have worked as an employed person next door) and have not encountered any problems so far.
I've heard stories of self-employed people who only had 1 year of administration and managed to get a great mortgage. Anything's possible.
2. How many years have you been working as a self-employed person?
The answer to this question is therefore less easy: it depends on who you take out your mortgage with. We have approached several mortgage advisors ourselves and have asked their help to go through the process. Both advisors indicated that at most banks you have to show at least 3 years of administration, but that there are also enough mortgage lenders who agree with 2 or even only 1 year of administration.
3. What if I have not been working as a self-employed person for so long?
This means that you should be able to take out a mortgage, even if you have not been working as a self-employed person for as long. Although 1 full year is really the minimum in my opinion, you also come a long way with nice forecasts. For example, I have a total of 3 years of administration, but only 1 of these 3 years is full-time. Nevertheless, the figures from the previous 2 years are so good and my prognosis is so well put together that the official rule is somewhat pushed aside. In addition, I also heard experiences from people who had just started as self-employed persons, and in which the previous years were taken into account as well as a well-founded prognosis as part of the mortgage assessment. The result? A nice mortgage.
4. Whether or not to invest your own?
Here in Ireland it is impossible to take out a mortgage without your own investment; but luckily this is different in the Netherlands. However, you can strengthen your business a little when you show that you have enough savings and you have the option of depositing an x percentage yourself for the purchase of your home. With just under 10% of the value of your mortgage you could come a long way. If 5% comes from your own savings here, you basically have enough to convince the mortgage provider of your financial security.
You have to put in a minimum of 10% of mortgage downpayment in Ireland and many other countries. No money means no mortgage.
5. Can I also only take out a mortgage?
Is it easier to take out a mortgage with a partner who works full-time with a permanent contract? Probably yes: but you can also do it alone. In principle, what matters to the mortgage lenders is your financial situation and your ability to pay the monthly mortgage costs. For example, here in Ireland we pay € 1,050 rent, and € 50 goes from both bank accounts to a savings account every month. This shows a potential mortgage lender that we have the space to donate € 1,100 to these fixed costs every month. If our monthly mortgage amount is less than € 1,000 per month, the bank can therefore be confident that we can pay this.
6. What influences my chances of taking out a mortgage?
There are many things that can influence your chances: but they are (almost) all financial. Do you have children for example? Then the bank knows that this also costs money. Are you alone and do you not have a piggy bank? Then the bank knows that you could get into trouble in a bad month. And how expensive is the house, how do you see your financial situation for the coming years and what do you actually spend your money on? So take a good look at your financial situation and try to see it from the bank's perspective. What would you have doubts about?
It does not have to be a problem at all to take out a mortgage as a freelancer; make use of the possibility to get yourself informed and advised by an independent mortgage adviser. In addition, I have learned quite a few things during our process about taking out a mortgage as a self-employed person, and I have listed a number of useful tips to increase your chances of a mortgage for you.
What did you do to take out a mortgage as a self-employed person? Did you find it a difficult or easy process?