An independent contractor is a self-employed person and may also operate through a limited company. Contractors work for other people or companies and usually contract for a certain period based on knowledge or skills to work on a project. They also sometimes charge a daily fee for their services.
Contractors are not on the payroll as fixed employees, and if there is a gap between their contracts. They may not have a consistent financial record or income. Therefore, it will probably be more difficult for contractors to get a mortgage. It will be difficult for them to find a lender.
But, being a contractor cannot stop applicants from getting a mortgage. However, applying for a contractor mortgage can be a bit complicated. To begin with, contractors will probably have to work harder to prove their income than when they work as salaried employees in a company.
Some lenders even want to look at their two-to-three-year accounts to make sure contractors can repay their mortgages. So the process of getting a contractor mortgage is a little more complicated than for salaried employees. Who can often get a mortgage based on the last three months of their pay slip.
carefully assessing the contractors
Also, some lenders are concerned that the contractors’ contract has an expiration date. Although contractors may earn more than their full-time counterparts, if their contracts are for less than a year, lenders want to know what happens to their revenue after the project is completed.
Contractors, in many cases, know that their customers are likely to extend the contract. Contractors may also have a good track record and may choose another job if necessary, but this is usually not enough for lenders. Lenders consider contractors’ income fluctuations to be risky. Therefore, by carefully assessing the contractors’ affordability, they are less likely to offer them an attractive rate.
Therefore, getting a mortgage for contractors depends largely on the right lender and proving the contractor’s affordability.
What documents must contractors provide to lenders to prove their affordability?
Stable annual income is difficult for contractors because, in addition to the complexity of the work. Lenders have different criteria and formulas for calculating it. In general, contractors must provide the following to prove their revenue:
- A copy of the current contract: The contractors’ current contracts show the lender the terms of the contract, revenue, end date, and scope of renewal. Contractors can also provide lenders with evidence that their contracts may be renewed.
- A copy of the CV: The resume reflects the contractors’ work experience and recent experience. In this way, lenders will become more familiar with the scope of the contractors’ activities and will be able to obtain a more accurate assessment of their affordability.
- Bank statement: The bank statement shows the financial resources available to the contractors to receive the mortgage. Bank statements are important because borrowing requires various fees, and contractors may experience income fluctuations during the mortgage repayment period. Therefore, providing medium and long term bank statements is important for lenders. The bank statement is also important to prove the validity of the contractors’ contracts.
- Other documents: Like any other applicant, contractors must provide other documents to lenders, such as identification, address certification and other documents.
3 key solutions for contractors to increase their chances of getting a mortgage
There are several ways to increase the chances of contractors getting a mortgage. However, lenders are more sensitive to contractors’ credit risk assessments. Like any other mortgage application, contractors increase their chances of getting a mortgage with a good credit score and a substantial deposit. But in general, ways to increase the chances of getting a mortgage for contractors are:
- Credit Score Improvement: Lenders are risk-averse and do not like to lend large sums of money to riskier people. Therefore, lenders always want to ensure that borrowers repay their mortgages on time and in full. Contractors must therefore strive to prove their affordability to lenders and to show lenders that they can repay their mortgages on time and in full.
- Larger deposit: Having a larger deposit also reduces the lender’s risk. The deposit amount is related to the Loan-To-Value ratio (LTV). LTV is the mortgage amount as a percentage of the total value of the property. The lower the LTV, the lower the interest rate (and the lower the monthly repayment) because the lender’s risk is reduced, and therefore the lender provide better rates and conditions for applicants.
- Regular income: Lenders are looking for contractors with a regular and reliable income. Gaps in contractors’ contracts can lead to non-repayment of instalments and reduce their credit score. So the contractor should not have many interruptions between their contracts.
The importance of using AWS Mortgage advisors
AWS Mortgage specialist advisors have worked with numerous contractors and lenders over the years in contractor mortgages and are fully aware of the contractors’ needs and conditions. However, as lenders’ criteria change, AWS Mortgage advisors constantly monitor the situation and talk to lenders’ underwriters to provide products that meet the contractors’ requirements.
Our experts first identify the needs of contractors and then share the lenders needed documents and information. AWS Mortgage specialist advisors review all the documents before submitting the mortgage application to the contractors to point out their shortcomings. AWS Mortgage advisors also present tailor-made solutions to the contractors and will be by their side from the beginning to the end of this process. Contact AWS Mortgage advisors to make the challenges of the contractor mortgage process easier for you.