Self-certification mortgages allow borrowers to declare their income without proof, benefiting the self-employed and those with irregular earnings. However, higher deposits and interest rates may apply, and lying about income is a criminal offense. It’s important to consult a mortgage broker for advice.
A self-certification mortgage is a mortgage that allows you to declare how much money you earn from employment. The self-certification mortgage was first used about ten years ago. It was established primarily for small businesses and the self-employed who did not have the required three-year proof of income that lenders require.
The self-certification mortgage isn’t just for the self-employed. Anyone who earns money irregularly can benefit from a self-certification mortgage. People who have temporary jobs or people who earn their money through commissions, such as salespeople, will find the self-certification mortgage useful. One of the main ways a self-certification mortgage differs from other types of mortgages is that you may be required to put down a higher deposit. You may also end up paying a higher interest rate on your home loan.
Borrowers who obtain a self-certification mortgage may find they need to put down a deposit of 70-80% of the home’s value. When you apply for a self-certification mortgage, you must show your bank transaction statements. The lender will use them to verify your gross income throughout the year. If you already own a home, you may also need to provide your mortgage statements.
You may not be asked to prove how much you earn, but don’t be tempted to exaggerate or lie about your earnings. The Financial Services Authority (FSA) has very strict rules on this matter, and it is a criminal offense to lie about your earnings. If you lie and are found out, then you could receive a criminal record. Also, if the loan is larger than you can afford, you may not be able to keep up with the payments.
There are a variety of interest rates available for self-certification mortgages. They’re higher than standard mortgage rates, and it makes sense to talk to your mortgage broker before making a decision. He or she should be able to advise and provide information on self-certification mortgages not available elsewhere.
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