If you’re a director of a limited business, getting a mortgage may seem even more difficult than getting one for one of your workers, but you can do a few things to make the process go more smoothly.
By following this step-by-step approach, you’ll have a much better idea of what you can do to improve the chances of your mortgage application being approved.
There is a prevalent idea that business directors must apply for a mortgage to be approved, but this is not true. If you operate a business, you qualify for the same types of mortgages as everyone else.
Even though you are formally classified as an employee, your income will be analyzed on a self-employed basis for affordability considerations. As a result, the evidence of income required by a lender will differ from that needed for a paid employee.
It is simple. A director’s basic yearly compensation from their company does not reveal the complete picture of their total income. The more evidence you provide of your total earnings, the greater your chances of securing a mortgage.
What Income Can You Include?
A corporate director can usually pay himself from the revenues of the company in one of two ways, both of which can be used as proof of income for a mortgage:
- Basic salary
- Dividend income from net profits
From a tax standpoint, it’s far better to take a low basic income and pay yourself a larger amount in dividends, allowing you to keep more earnings in the company.
It is acceptable provided your combined wage and dividend earnings give adequate proof that you can pay the mortgage you want. But, if it isn’t, what are your options?
The good news is that several lenders have a better knowledge of how a company director’s salary works and will also consider a business’s retained profits as additional proof of profitability. It might provide you with a significant boost regarding how much money you can borrow.
How to Get a Mortgage Based on Salary and Dividend Income?
Most lenders will want a company director’s proof of income to include both pay and dividends. There are a few things you can do before applying to make the process go more smoothly and boost your chances of approval:
Prepare All Your Documentation. A lender will want to examine copies of the following papers to acquire a complete picture of your earnings and understand how they were accumulated:
- 2 to 3 years of certified business accounts
- Latest (3-6 months) business bank statements
It’s critical to double-check your business accounts and bank statements to ensure that they appropriately reflect your wage and dividend income. You’re ready to apply after having all of your proof of income ready and in hand.
Speak With an Experienced Mortgage Broker. Although all mortgage lenders follow the same guidelines, they do not all employ the same qualifying criteria. As a result, specific lenders may be more receptive to a loan application from a corporate director than others.
Instead of going straight to a lender, speaking with an expert mortgage broker who specializes in assisting business directors is one of the best options you can make. It is especially true if your financial position is more complicated than others.
The correct broker will be able to find the lenders that are most suited to take into account all of the complications associated with your application. Still, they will also be able to assist you in gathering all of the necessary supporting documentation.
How to Get a Mortgage Based on Salary and Retained Profits?
When determining your affordability, most lenders will only consider the actual revenue you’ve received from the firm, such as salaries and dividends. Profits kept in the company will not be included.
If this is the case, your declared income may not be enough to qualify for the mortgage you want, especially if you’ve taken a low salary to keep more earnings in the firm for expansion chances, for example.
For many corporate directors, this may appear to be a little unfair. After all tax duties have been paid, the net earnings generated by your business are yours to utilize whenever and however you want. Regrettably, not all lenders agree.
How Many Years of Certified Accounts Do You Need?
Most lenders prefer three years of certified accounts as a starting point, but if you only have two years, don’t worry. Many lenders will still consider this sufficient time to base their affordability criterion on.
Only one year is required in other circumstances, albeit obtaining clearance becomes considerably more difficult at this stage. If you’ve already committed to work contracts with new clients, you may make a difference by requesting your accountant to generate income predictions for future years.
The industry you work in can also make a difference, especially if you have one or two years of records to work with. If you’re a doctor or dentist who just transitioned to a limited firm, make sure you provide proof of your recent job history with your application.
Tips to Improve Your Eligibility
More elements might increase the likelihood of your mortgage application getting approved. You can do the following further steps:
- Make as much of a deposit as possible. More lenders will consider your application if you have a higher deposit.
- Speak with your accountant and ask them to assist you in gathering all necessary documentation.
- Make it a habit to check your credit report
Getting a mortgage isn’t inherently more challenging if you’re a corporate director. Still, it might be more complicated if you don’t know what sorts of income you can submit as proof of profits or which lenders would look more favorably on your application.
The wisest option you can do at this point is to seek guidance from a mortgage broker who knows what it takes to have an application like this approved. Their insider information and lender connections might differ between success and failure. For more information, you can visit www.mortgage-selfemployed.co.uk where you can get detailed info about mortgages.