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Listen back with John Duggan.
Podcast Link: Self-employed and applying for a mortgage
With nearly 1 in 5 of the Irish workforce working in a self-employed capacity, it’s important to understand how banks and lenders will assess your income when applying for a mortgage.
Self employed applicants include:
For business owners, lenders will look for a history of the company’s performance and the level of earnings being declared over a minimum of the previous 2 years. The lender will take an average of the income when assessing the maximum mortgage available.
Lenders will look to take either the net profit or the income that has been drawn out of the company as income and declare it to review on the tax returns.
Where a company is relatively young, the first year is typically the ‘weakest’ year with start-up costs reducing the net profit. Taking an average can help balance this out. However, it’s important to note that because of this, some applicants may want to wait until they have a full 3 years available so the stronger years can be used for assessment.
For landlords, this could be 1 property let out or multiple units. The lenders will look for evidence that the rental income has been declared to revenue, and will want to see the 2 years previous tax returns to validate and include this income.
Many fixed-term contract workers have moved to a self-employed capacity to benefit from paying less tax when compared to being PAYE. The banks will want to see you have a history of contracting for a minimum of 12 months and that you are currently under contract.
As there are a wide variety of business types, speaking with a broker will support you in ensuring the maximum income is taken into account for your application and that you are placed with the best lender to meet your needs.