Director mortgages are usually assumed to be simple to obtain. But the truth is that it can be challenging. That is because many mortgage lenders see self-employed borrowers as a great risk.
It is normal for self-employed workers to minimize earnings legally. This involves minimizing tax bills that often have some drawbacks when applying for mortgages.
A company employee can fly through mortgage approval, while a company director may struggle with it.
According to experts at the Right Mortgage UK, lenders’ criteria and evaluations vary for a self-employed applicant, especially for a limited director mortgage. This is because every lender has its own criteria, and businesses have their own stories.
There are a few reasons some mortgage lenders may hesitate to offer loans to limited company directors. Most of it basically comes down to being extra careful about the reliability of their future earnings.
That is why directors are recommended to take income as dividends, not as PAYE payments. This means their personal earnings rely on their company’s performance, which at times fluctuates.
Simply put, lenders don’t like complex incomes because processing and understanding your affordability takes more time. So they can approve your limited director mortgage when you have a complex income.
As a company director hoping to find the right mortgage, it is very easy to be overwhelmed with where you should start.
It might as well be more difficult to navigate different criteria thousands of mortgage lenders use, especially when most are not ideal for company directors like yourself.
But the good news is that many mortgage lenders have specialized in offering mortgages to company directors.
Typically, mortgage lenders consider limited company directors self-employed applicants. This explains why some lenders don’t offer them loans, and if they do, they provide loans with high charges or rates.
Because of that, you might want to contact the right lenders with reasonable policies when it comes to eligibility.
Lenders have a dissimilar set of rules. There are mortgages designed for company directors and mortgage lenders who have specialized in customer base. But how you report and declare your income will affect the results.
Regular employees must wait for about six months before they can apply and be approved for mortgages. But as a company director, you must be in trading for one year.
And even so, you must show proof that you have ongoing projects – meaning there should be future income.
It is also common for mortgage lenders to look at your three-year account before making you an offer. Besides, most of them understand that salary is not always accurate in depicting how stable and profitable your company is.
Applying for mortgages is stressful for company owners as well as other self-employed applicants. Not to mention, the proof of income needed might be fairly demanding.
One of the shrewdest decisions you will ever make in this process is to ask for help from a reliable and professional broker who knows what it takes to get your application over the line.