In today’s financial landscape, your self-employed income plays a pivotal role in determining your eligibility for mortgages, loans and various other financial products. Most lenders use a multiple of your income to determine the level of finance that they are willing to provide.
Many lenders will use an average of your income over the last two years, unless the latest year is lower – then they would use this figure. However, we have access to lenders who would look at your latest years figures in isolation, now if you have had a particularly strong year, this could really boost the level of funding available to you.
Lenders have different approaches to how they will calculate your self-employed income. Some lenders work off your declared figures on your tax return, whilst others will work from your annual accounts. This allows them to utilise the profits of the business, plus Directors remuneration, meaning that you can use income that you haven’t drawn and as such, haven’t had a need to pay personal tax on the income.
Ensuring a Broker understands the different ways in which lenders assess your income and what figures they will utilise is key to any mortgage application for a self-employed applicant.
Financial stability and creditworthiness are closely tied to income eligibility and documentation when your borrowing capacity is assessed by lenders. Lenders have specific requirements to evaluate your financial stability, these are based on factors such as income history, debt-to-income ratio, and overall financial health – they are looking for sustainability of income. By leveraging your latest year’s income effectively, you could maximise your borrowing capacity.
In conclusion, leveraging your latest year’s income is not just about presenting numbers on a financial statement, it’s about showcasing your financial stability, sustainability and creditworthiness to lenders. By providing accurate and stable income documentation, demonstrating consistency in earnings or a track record of growth in earnings, and understanding lender requirements, you can strengthen your position during the mortgage application process and position yourself as a credible and reliable borrower in the eyes of lenders.
At Hallcroft Finance, we can discuss your mortgage application with you and provide proper guidance to this alternative homeownership strategy.
Ready to start? Reach out to the team and let’s make your dream home a reality.