What income can I use for a mortgage application?
One of the main parts of a mortgage application is checking affordability. This is where lenders decide how much you can afford to borrow. They will look at your income and your outgoings to make their decision. But what counts as income?
Basic income
For many, their salary will be their main and only source of income. Lenders usually see those who have been at their job for a long time as lower risk as they are seen to have more job security compared to someone who may be in the first month of their new job and still on a probation period.
If you wish for any extra income from your job to count, you will need to prove that the extra income is regular. For example, if you regularly have overtime pay or bonus pay. To prove this, you will need to provide multiple payslips with your overtime and bonus pay on there.
Some lenders won’t accept the extra income and will only look at the basic salary. Therefore for those who may have a low base salary that’s supplemented by commission, you will need to be sure that you approach the correct lenders.
Freelance and Self Employed Income
Freelancers and those who are self employed may have a harder time getting a mortgage but it doesn’t mean that’s it’s not possible.
You will need to provide Business Accounts and/or Tax Returns. For Business Accounts, you will want to be able to show preferable two to three years of accounts, usually signed off by a chartered or certified accountant. For Tax Returns, you might be asked to provide two years of tax calculations and tax year overview forms.
However, someone who is self employed will be assessed on profits, not turnover and if you have chosen to legally minimise declared profits to pay less tax, then you could find it harder to get a mortgage.
Additionally, most mortgage providers will take this into account and Directors may be able to use their company’s profit as proof of suitability with 12 months of records can be enough for some lenders.
Zero Hour Contracts
Some lenders will include income from zero hour contracts subject to seeing evidence of 12 months of payments. In some cases, lenders may decide to only use 50% of your income.
Other sources of income
There are other things that lenders will consider as income such as pension income, investment dividends and Government benefits. You will need to provide evidence of income and show that you receive it regularly.
If you’re a landlord of a different property, not all lenders will accept rental income as additional income. Given that rental income is used to determine suitability for a buy to let mortgage in the first place, it makes sense that it wouldn’t be counted twice.
Outgoings
You’ll be expected to provide bank statements, usually 3 months’ worth to show how much you are spending each month and to determine your affordability.
How can a Mortgage Broker help?
Using a mortgage broker like ourselves will make the whole process a lot easier for you, we have extensive knowledge of the lender’s criteria and know which lenders to approach depending on your circumstances.
Another benefit of a mortgage broker is that they can approach all the lenders on their panel to find the best rates to suit you, understand what evidence and paperwork that needs to be submitted and sometimes have exclusive rates that are only available to brokers.
If you wish to get in touch with us for advice on your mortgage, don’t hesitate to get in touch with our team. Call us on 01270 443510 or complete our contact form and we’ll be in touch as soon as possible.
Highlights:
- Have the details of your income, including payslips and bank statements before applying for a new mortgage.
- Regular overtime and bonuses can be included in determining your total income.
- Pension income, dividends and state benefits can also be included when determining your income.
- Freelancers and those who are self employed might experience a harder time getting a mortgage.
- As part of the affordability check, lenders assess your income as well as your outgoings.
- Don’t be tempted to borrow more than you can comfortably repay.
Cheshire:
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Crewe, CW1 6ZQ
01270 443510
enquiries@amplomortgages.co.uk