FINANCE SUPER MARKET

Traditional mortgage loans may be out of reach for many people who will not qualify because of their employment situation. While the typical 40 hour work week, fixed paycheck job where you get paid twice each month is still widely available, there are a growing number of jobs that rely heavily on commissions or bonuses as part of the pay structure. Additionally, for people that own their own business or professionals who earn their income from freelance projects, a traditional mortgage can be difficult to qualify for.

In these cases the potential home buyer may be interested in looking into a self-certified, or stated income, mortgage.

You may see these self certified mortgages advertised as “no-doc” or “low-doc” mortgages, meaning you have provide less documentation (proof of assets and income) than you would with a conventional finance. Self-certified mortgages do not require the same type of qualification process as a traditional mortgage. Typically, the borrower states what their annual income is expected to be, taking into account any expected overtime, tips or bonuses. Then the lender, rather than reviewing pay stubs, performs a credit check and looks at the borrower’s credit score. The lender may also require the borrower to provide creditor references that are familiar with their payment history.

If you are interested in applying for self certified mortgages, then your lender will need to gleam as much financial information from you as possible. The more information that you are able to provide the more likely that you are to obtain a good deal and mortgage rate.Self certification means that you self certify that you can make payments on your mortgage and because of this, there is often a higher rate applied as you are seen as a larger risk to lenders than someone who can substantiate their income.

Both Self-cert and Sub-prime are significant sectors and it is anticipated both will continue to perform strongly. Gross lending in this particular sector is predicted to reach 26 billion GBP by the end of 2006. However both Self-cert and Sub-prime are also under scrutiny by the Financial Services Authority. There are currently about 4 million self-employed workers in the UK up from 3.2 million in 2000, according to the Office for National Statistics and an increasing number of people who rely on bonuses, commission or second incomes in addition to their basic pay.

UK working patterns are changing and multiple income sources are increasingly common. Datamonitor estimate some 6 million people are in employment types suited for Self-cert and forecasts 4.7% growth per annum to 2009. Market research organisation Datamonitor report that around 55% of self certified customers are self-employed, and another 34% are contract workers, seasonal workers and agency staff. That makes 89% of people in the self-certified market who fall outside the traditional employed status due to the way they work or earn their income.

Because of the looser qualification standards of the self certification mortgages, the interest rate is normally higher. You can typically reduce the interest rate a bit by having a larger amount to put down as a down payment on the home. Because of the higher interest rate, self certification mortgages are not normally the first choice for most people. If you can qualify for a loan through a more traditional method, you will probably receive a lower interest rate or qualify with less money down.

Many people choose self certification mortgages because, by including money earned from tips, bonuses or commissions, they will qualify for a larger mortgage than they would if only their base income was considered. If you receive a good deal of your pay from this type of contingent payments, then a self-certified loan is certainly a good choice. Unfortunately, some people consider a self-certified loan as an opportunity to receive a loan that there is no way they would qualify for. They exaggerate their income, either through optimism or greed, and, because of the lack of proof required in self-certified loans, quickly find that they are having trouble making their payments.

Self cert mortgages are available to everyone, but in particular are useful for those who cannot prove their income or do not qualify for standard mortgages. You are not required to provide documentary evidence of your mortgage, but it is important that the information that you supply is as accurate as possible. Customers can be divided into three categories which helps determine the circumstances when self certification may well be the right option. Self-employed applicants who may not be in possession of an adequate history of audited accounts and/or taking much of their income as dividends.

Contractors who may be on their first contract with no history of renewal, or may be contracting in an industry/profession outside of their previous experience and employed applicants may rely on bonuses or commission; have investment income, including buy-to-let properties; and they may have other income sources, such as maintenance payments.

If you have determined that self cert mortgages are the best choice for you, how do you avoid getting in over your head? The first step is to be brutally honest when reporting your income. Do not use numbers that are overly optimistic; if anything, choose numbers that are conservatively pessimistic. Never count on something that has not happened yet. If your bonus normally increases 2% each year, there is no reason to expect it to increase 10% this year.

If you have concerns about relying on a certain level of projected income, and then falling short, discuss it with your lender. Too many people attempting to secure self cert mortgages mistakenly believe they must bluff their lender by misstating the facts, and this is not true. In fact, the lender is your ally. They want to lend you money because in the end that is how they make their money. They simply do not want to foreclose on you. If there is a reason for concern, they want to know. They have more experience with loans than you do, so discuss your concerns with them and take their feedback into consideration.