Self Certification Mortgages
by Ellise Walsh

Income verification is an important part of any mortgage application and approval process. The potential home-buyer must convince his or her bank or mortgage lender that he or she will be able to afford the monthly payments on the mortgage.

Typically this verification of income is accomplished through income tax returns, pay stubs, bank statements and other traditional documentation. However, for those applicants who are self-employed contractors or those who own their own businesses this traditional documentation will not generally be available.

One of the most popular types of mortgage for the self-employed or the business owner is known as the self-employed mortgage. In order to be approved for a self-employed mortgage, however, the application will typically be required to provide three years worth of business account information. Therefore, owners of businesses which are less than three years old will probably be ineligible for a self-employed mortgage.

For these business owners or self-employed individuals, another option is to obtain a mortgage loan on stated income. You may also hear this type of mortgage referred to as a self certification mortgage. In order to get a self certification mortgage, the borrower will declare his or her income. The mortgage borrower will need to prove his or her income through the use of an accountant’s certificate. An accountant’s certificate is a signed document that states the borrower’s income is adequate to pay the monthly payment on the mortgage loan.

The potential mortgage borrower may also be required to provide bank statements for the business for a specific period of time. The mortgage lender requires this information in order to estimate the gross income and business receipts for the potential borrower.

In the case that the potential borrower is already paying on a mortgage loan or other type of loan, he or she can submit that payment history to prove their ability to make payments on time. If the potential borrower is a tenant, he or she can submit a letter from the landlord attesting to the reliability of the potential borrower.

As with a traditional mortgage, the mortgage lender will run a credit check on the borrower to determine his or her creditworthiness. In addition, the mortgage lender will typically require a higher down payment on a self certification mortgage than on a mortgage secured with traditional income documentation. Down-payment requirements vary from lender to lender, but you can expect to put at least 25% of the purchase price down in order to obtain self certification financing.

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