Getting a mortgage loan might not be easy. There are several processes and criteria that you must comply with the set terms and conditions before securing a mortgage. It can be more complex for limited company directors, and it is a huge financial commitment for them. They need to look for lenders who will understand their salary criteria and business complications.
If you require a mortgage with the best deals and interest rates in the market, then visit website limited company director mortgage to secure the highest loan amount you can avail elsewhere. Further in this article, you will get insights into how mortgages for company directors work and the important criteria and conditions to be followed to secure a loan.
Proof of income
To get a mortgage, a company director will require evidence to prove their income. When it comes to showing proof of your income, it mainly depends on two basic elements based on which you might need to show evidence.
As a part of income evidence, mortgage companies usually ask for 2-3 years of finalized accounts or accounts reference of the company before providing any loan. Sometimes they might even ask for personal and business bank statements for the previous 3 months. If you are in a partnership firm, then you will also need the partner’s payslips or the partner’s bank statements (not always mandatory).
Apart from obtaining proof of income for the loan, the mortgage company will assess if you are a low-risk borrower based on clean credit history, previous debts, identification documents, address proof, and other documents if required.
Eligibility
The next thing the mortgage company assesses is the eligibility of the company directors based on proof of income and a few other factors, which are the criteria to secure the loan. If you are a director of a limited company, then your eligibility criteria will be based on how you declare the profits, and the process and conditions might differ from a regular employee.
If you require a loan or you need a mortgage for your company, then better keep backups and look for lenders who will understand your employment and financial conditions. The first basic eligibility criteria include complete information about your trading history.
To secure the loan, you must have a trading history of more than 12 months if you are in a profession like doctors where you can avail mortgage at a lesser trading period. The next eligibility criteria are the deposit amount that the company directors ask for. It is based on the application for the loan.
If the application is simple and you have all the required documents like adequate proof of income, and must not have any adverse credit. But if your application is complex, i.e., you have a poor credit score, or because you are self-employed, then you might face complications.
In most cases, the eligibility of company directors is assessed the same as other borrowers until your application is not complex in terms of the deposit amount. The terms to the loan in meeting the eligibility criteria might change based on the higher risk factors on higher deposits. Even if you have a poor credit report, it depends on the issues for the poor credit report and when it happened.
Affordability
The last criteria these mortgage companies verify is the affordability to repay the loan. The affordability to repay the mortgage amount is again based on your proof of income and a few other factors like income calculation, dividends, etc. There are plenty of calculations that must be done to check the affordability of the borrower.
The amount of loan you are allowed to borrow will be restricted to certain limits based on your credit report. Company directors with a clean credit report can avail of the loan amount up to 5 times their income. Whereas if you have a bad credit report, then you can avail mortgage up to 4.5–5 times of your income.
The income calculation will be based on the type of company you are the director in. If you are a director of a sole proprietorship, then it will be calculated on your net profit. Up next, If you are in a partnership business, then income used to calculate affordability will depend upon the share of net profit.
Lastly, if you are a limited company director, then the income calculation will be based on salary received along with dividends or share of net profit. Most company directors tend to keep most of the profit for the company and take a lesser amount as salary and take larger dividends.
This helps them to pay lesser tax amounts by showing a lesser salary. Also, they can keep extra funds for the growth of the company. How this might affect you adversely while applying for a mortgage because the lender will consider your income which you have intentionally shown less.
The next factor used to assess affordability is the dividends company directors receive or the income from dividends. Some mortgage lending companies lend higher amounts based on dividends received by the director. Dividends increase your overall affordability to repay a mortgage. Hence, many lenders show dividends to get a higher mortgage amount they can avail themselves of elsewhere.
A company director can also increase their affordability by using profit retained in a limited company. In some cases, lenders often consider retained income in the business based on the profit made by the company.
The Bottom-line
This is how mortgages for company directors work. There can be plenty of factors that will affect your eligibility for availing of a mortgage. There are several criteria and conditions you might have to follow before availing of any loan.
To secure a higher loan amount, you must have proof of income, meet the eligibility criteria, and must be able to afford to repay the loan. These conditions and processes have been laid down keeping a general employee in mind. Hence, getting a mortgage for directors has become somewhat easy.