Lenders consider contractors and self-employed as high-risk customers; thus, they consider a variety of criteria and formulas for assessing contractors’ affordability. However, despite the expansion of contractors in various economic fields, high street lenders are paying more attention to contractors and the self-employed.
This means that the need for contractors to get mortgage advice is increasing day by day. So finding a lender whose criteria best fits the contractors’ financial situation can be challenging. It will make it difficult for them to accept a mortgage in the future. This problem becomes more apparent when contractors claim large mortgages.
For this reason, it is essential to use a broker to provide contractor mortgage advice, guidance and evaluation of products on the market. This article addresses the requirements for self-employed and contractors to get contractor mortgages and the importance of explaining bespoke approaches to contractor mortgage advice.
Mortgage For Contractors: What Are The Mandatory Conditions For Getting A Mortgage?
To get a contract mortgage, contractors must prove their future income to the lender and provide the necessary documentation to ensure that lenders and self-employed can repay their mortgage instalments on time.
When contractors and self-employed apply for a mortgage, lenders first determine how much to lend to them and look at how much the contractors generally earn, how much they spend, and how consistently they earn. Contractors usually have to show their income history for at least six months. Although many lenders expect to estimate their income for the past two to three years. For this reason, applying for a mortgage early in the contracting career can be more difficult. Although there are solutions that can help contractors get a mortgage.
On the other hand, Lenders often calculate the income that contractors have earned in recent years to estimate their average income. Lenders use this method to determine the monthly repayment of contractors, especially if the contractors have a long history of work. However, mortgage lenders are unlikely to use this method if their income changes significantly over the years. In these cases, they may value the contractors’ revenue in recent years as their revenue.
In this case, they may borrow less than what the contractors deserve. Although many lenders request a 12-month contract from contractors. Some lenders may want to calculate their annual income based on their daily rate. In this case, lenders estimate the contractors’ daily rate and multiply it by the number of days they work per week and throughout the year.
In general, tax invoices, bank statements, balance sheets and approvals they can get from the employer, along with deposits, are the most critical conditions for proving the contractors’ ability to get a contractor mortgage.
Proof of tax is a strong case for the annual salary of contractors. Issuance of invoices is one of the essential duties of taxpayers in tax laws and regulations. As self-employed must complete direct tax and VAT invoices each year, these invoices serve as valid evidence for assessing contractors’ income. In this case, it is necessary to use the services of a reliable advisor who carefully prepares the tax return of the contractors and puts them in the lender required formats.
However, some lenders have asked contractors for bills for the past three months. Therefore, contractors must prepare their bank statements in advance and submit them to the bank for approval.
History of contractors’ contracts
By providing current and future statements, sample contracts, approvals received from employers, and any evidence of a stable income for contractors in the future, the lender can be more confident about the timely repayment of the mortgage instalments it will pay and will provide better rates and conditions.
The duration and quality of contractors’ work are the main factors that mortgage lenders seek to assess their eligibility for mortgage payments. As a general rule, the more time contractors spend on their current employer, the better their chances of getting a mortgage. But the situation varies significantly among lenders. But in general, the following documents are essential to prove the stability of contractors’ income.
Previous and future long-term contracts
Lenders are looking for signs of secure long-term income for contractors. If the contractors can provide the lender with a list of their ongoing contracts with employers or show evidence of previous agreements that may be extended, then their request to lenders will be more attractive. For example, if contractors regularly work for a certain number of months a year and can prove that the income generated in those months covers the mortgage repayment, it can significantly help them get a mortgage. In general, contractors need to show mortgage lenders that they can repay their mortgages monthly, even with variable income.
Invoice statements are the monthly performance statements of contractors who present their performance to the employer in tables based on the type of contract. Invoices regularly sent to employers are used as evidence to determine the contractors’ wages. Types of invoices include temporary status invoices, pre-approved, and approved invoices. Depending on the type of contract, contractors can submit their invoices to the employer based on the price list, unit rate, management contract, work progress, estimations or fixed price. By providing a history of agreements, lenders are informed of contractors’ records to estimate their future earnings.
Contractors can provide lenders with receipts confirming their past and future approvals from their employers. Approvals received from the employer indicate the years of cooperation of an employer with contractors. By relying on these approvals, lenders can better and more accurately assess the competence of contractors.
Contractors credit history
Contractors credit score
To apply for a mortgage, contractors need to consider how good their current credit score is and whether they should improve it before applying for a mortgage. This is very important for contractors because lenders will look for evidence of significant and ongoing cash flow in their financial statements when contractors’ income is not guaranteed. Contractors must also provide proof of their operating costs. The more information contractors offer, the better the lender can understand their financial situation and feel confident that it is lending to them.
Lenders charge between 5 and 10 per cent of the deposit to pay the contractor mortgage as an advance. However, the higher the contractors’ credit score, the lower their deposit. The deposit amount has a significant impact on the mortgage rate, and contractor should pay enough bank deposits because the deposit is one of the vital pillars of the contractor mortgage.
Affordability to pay mortgage fees
Mortgage costs at different stages are an essential factor in comparing other options. Borrowers usually have to pay additional fees during different stages. For example, private mortgage insurance premium, administrative, underwriting, contract termination, closing, and other costs are charged by lenders at various stages. Contractor should put these variables together and compare different products with all mortgage costs in mind when negotiating with lenders.
Choosing a lender for a contractor mortgage
If a contractor’s income is relatively steady and has been working for a long time, some high street lenders may be willing to accept their applications. Contractor will also have a better chance of getting a contractor lender with specialist lenders. But many lenders make accurate assessments based on the contractor’ credit score. Which may mean that they are offered a lower mortgage amount or their application is rejected altogether. Therefore, choosing a contractor-friendly lender is one of the critical steps in getting a mortgage.
Contractor Mortgage Checklist
While it can be challenging to get a mortgage without a permanent job, by following these steps, contractor can put themselves in the best possible position:
- Provide as much evidence as possible about their income in recent years. For example, they may collect and submit bank bills, invoices, tax invoices, etc.
- If contractor operate in a limited company, they may bring their full business accounts and inventory.
- Provide evidence of their current and previous contracts as well as their previous experiences.
- Upgrade credit score before applying for a mortgage.
- Pay more deposits.
- Find a mortgage borrower who specializes in contractor mortgages.
- Use the contractor mortgage advice of brokers.
This checklist will greatly help contractor increase their chances of getting a mortgage. Because lenders set different and strict criteria for paying mortgages to contractor. By observing these checklist items. The contractor will make sure that nothing is left out and that all the lenders required documentation and the steps to be taken have been completed completely and correctly. Using mortgage broker advice will also help contractor achieve the lender’s actions.
Benefits of a Contractor Mortgage Broker
A contractor mortgage broker is a bridge between borrowers and lenders. They tailor lenders ‘criteria to the borrowers’ financial conditions and potentials. Contractor can benefit from contractor mortgage broker advice in getting a mortgage at reasonable rates and conditions, some of which include:
- The contractor mortgage brokers make sure that all the documents have been fully collected and submitted. As well as the underwriting process and the assessment of the contractor’s affordability has been done correctly.
- Some lenders prefer to lend through contractor mortgage brokers; because it is cheaper and less risky for them to lend.
- Contractor mortgage brokers are fully acquainted with the available products in the market and lenders. Who are interested in lending to contractor. For this reason, they can make a complete comparison to the lenders’ products type and conditions. So contractor can save a lot of time and energy.
- Contractor mortgage brokers make a thorough assessment of the needs and financial condition of the contractor. The contractor’s mortgage agent also examines the contractor’ file deficiencies and provides them with the necessary guidance in this regard.
- Given the complexity and difficulty of the contractors’ mortgage process, using a broker specializing can significantly increase the chances of contractors getting a mortgage because they have enough knowledge and experience about mortgages for contractors and are fully aware of the lenders’ new products.
- A specialist contractor mortgage broker sends several requests to lenders during a month and is fully acquainted with the different stages of contractor loans. Therefore, it can get reasonable rates and conditions from lenders.
It does not matter to the lender whether a company or a contractor employs you. They want to know how capable you are of paying your mortgage. Having a fixed salary and having a fixed contract with an employer is the best way to prove this. But when running your own business, there are other ways to demonstrate your affordability. But this path faces many complexities and challenges. Some lenders have designed products specifically in mortgages for contractor. A mortgage broker will guide you in the right direction. So, that you can borrow from top street lenders and get products that meet your needs.
For more information on the documents and requirements for getting a contract mortgage. You can talk to AWS Mortgages expert advisors for getting advice on mortgages for contractor’ amounts, terms and rates. Experienced AWS Mortgage advisors will also speak to you about the documents you need to get a mortgage and make it easier to get a contractor mortgage. Also, you can speed up your mortgage application process using AWS Mortgages expert advisors. Because they are fully aware of lenders’ requirements and will remind you in advance of the required documents. Therefore, your mortgage processing and underwriting process will be faster.
AWS Mortgages works with lenders who consider your application individually and consider the appropriate rates and conditions for professionals in their large mortgages. To find out how AWS Mortgages specialist advisors can help you, talk to one of our large mortgage advisors.