A self-certified mortgage (or a self-employed mortgage) is a mortgage designed for those who cannot verify their income so are not eligible for traditional mortgages. This can be for a number of reasons including:
– Your income is from multiple sources and fluctuates regularly
– You receive a basic salary with additional commission/bonuses
– You earn a regular second income
– You are self-employed and do not have the appropriate documentation (three full years of trading accounts) because you have not been trading for long enough
– You work contractually, seasonally or as a freelancer
– You have accounts but your income has been minimised for tax purposes
Unlike other mortgage types based on earnings, self-certified mortgages are based on your credit score/history as well as references from lenders that you have used previously.
The Good, The Bad
The main advantage that these mortgage types offer is that a mortgage can be obtained where it otherwise wouldn’t be offered. Another advantage is that you are able to borrow larger sums of money with self-certified mortgages than you can under standard mortgages. The application process is also a lot quicker than other mortgage types as lenders do not have to carry out so many checks.
The biggest disadvantage with self-certified mortgages concerns their interest rates; as these mortgages are considered risky, they often carry higher interest rates than other mortgage types available. Also these mortgages have a low ‘loan-to-value’ ratio which means that larger deposits are more often than not required to apply for one.
Self-certified mortgages are much less popular nowadays because lenders are reluctant to take the risk of offering these mortgage types after the recent recession.
Important Things To Consider
– Your home could be repossessed if you regularly do not make your repayments on your mortgage
– It is a legal offence to lie about your credit rating/history
– In some cases, your insurer may require you to have a Mortgage Payment Protection Insurance (MPPI) policy in place to adhere to their terms and conditions. Even if you’re insurer does not ask or tell you about MPPI, you should always ask to ensure that your protection policy is valid.
– Mortgages are a huge financial commitment and should not be entered into lightly. You should always seek expert advice from an independent financial advisor or mortgage broker when purchasing a mortgage.
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