Contractor mortgage

2011 February 19

Contractor man and womanToday many people are finding employment as a contractor in order to secure employment and a better income. Banks and other lenders can classify their clients and applicants into either wage earners or the self employed. At the same time, to become more efficient, they are outsourcing some departments and staff whilst struggling to lend support to contractors overall.

Finding the right mortgage broker can make all the difference when it comes down to getting a loan approved. Also see below for information on what documents may be required to prove your income.

There are two major types of lenders as qualified by most lenders;

  1. Pay As You Go (PAYG) contractors – Can have trouble applying for a home loan without consistent evidence of employment and income.
  2. Self Employed Contractors – Have an ABN and generally need to be in their current role for a minimum of two years before they can get a loan, the same as self employed borrowers.

Yes, you can qualify for a home loan by applying with a bank that has more flexible lending policies for contractors!

The secret to getting approval is to apply with a lender who can accept your employment situation. Speak to a mortgage broker such as the Home Loan Experts who specialise in contractor mortgages.

PAYG Contractors

The ability to prove a strong track record of experience in the same industry is an important criteria for most lenders. There are some lenders who can consider PAYG employees on a contract who have only been in their job one day.

Self Employed Contractors

There are lenders who can treat the self employed contractors with the same flexible policies used for PAYG contractors. In particular if you work for an hourly or daily rate and contract to only one employer then you can qualify for a mortgage with some lenders.  This means that they may not be required to be in their current role for two years, in fact new contractors may be acceptable if they have been employed in their industry for several years.

What documents are required for proof of income?

Lenders must be aware that your income will be fairly regular, and like a wage earner you can make your repayments consistently, and on time. Significant pay fluctuation means you may need to provide a three month history of your income. This enables the lender to accurately determine your income.

Each particular contract will require slightly different documentation. However as a general rule you must have a letter from your employer and two or more payslips. A copy of the contract may be required and or tax returns to confirm the length of time you have been in the same industry.

As a Self employed contractor you should also include proof of the previous three months income using documents such as bank statements and invoices. You must also make sure the letter from your employer confirms your contract conditions. Providing your last years tax returns as well will allow your mortgage broker to choose from a wider variety of lenders.

Some banks will only approve a loan for contractors with a minimum two year history of employment confirmed with tax returns for the last two years. You can talk to a mortgage broker that specialises in contract employment mortgages and you can find a lender more willing to take a common sense approach to lending.

What kind of employees apply for these loans?

  • IT contractors or consultants – The most common type of contractor that is seeking a mortgage
  • Government contracted employees
  • Mining employees / Contract mining consultants
  • Builders / Painters / Labourers
  • Anyone paid by the hr/day who invoices their employer via their own ABN / Company
  • Human Resources consultants
  • Salespeople / Salesmen
  • Journalists and those working in the media such as freelancers
  • Caterers
  • Sub-contractors

What loans are available and how much can I borrow?

Professional packages, basic loans, lines of credit, fixed rates and all other loan types are generally available to contractors. You can typically borrow up to 90% of the property value. If you can provide strong evidence of your prior employment then we may be able to help you borrow as much as 95% of the purchase price.

You can also use a family pledge home loan to borrow up to 100% of the property value without the need for a deposit.

Get help today!

Some mortgage brokers are experts at getting approval for contractors at competitive low rates, especially firms where all the mortgage brokers are self employed contractors themselves! You can find out more about applying for a home loan from the Home Loan Experts web page on contractor mortgages.

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