Whilst contractors have a savvy lifestyle and generally have much more freedom than permanent employees, there are a few drawbacks that make being a contractor slightly problematic. The task of getting a mortgage is one of them.
Applying for a mortgage as a contractor can often be stressful, and can prove to be much more of a challenge than it might be for those in permanent jobs.
The most notable and well-known reason for this is simple. As a contractor, your salary depends on you being able to acquire regular contracts that are well paid. Therefore, some mortgage companies will arguably be more cautious of you than those who have an assured and indefinite income.
However, there are always ways in which you can ease up the difficult process. When applying for a mortgage, these are the key things you should watch out for.
Use A Contractor Mortgage Specialist
It’s easy to assume that you can find the right mortgage deal by yourself. The problem is that most banks and in-house solicitors are not fully familiar with the world of contracting or the needs you will have specifically. This means that you tend to fall outside of their standard script when it comes to asking for things like employer’s details and proof of the time you were employed – making it far more challenging for you.
You should make it your mission to find a mortgage broker that specialises in working with contractors exclusively. This will save you hours of making calls and wandering around trying to find a lender that doesn’t shudder at the word ‘contractor’.
Thankfully, there are now many more lenders that are prepared to underwrite loans to contractors based on an annualised multiple of their daily contract rate. It is no longer necessary to have 3 to 5 years of proven accounts or earnings to secure a mortgage.
These days contractors can access the same rates in the market as everyone else, and rates will depend on factors such as deposit size, income, period of borrowing, type of mortgage and whether you are a first time buyer or not.
Consider A Financial Advisor
Getting yourself a mortgage specialist is one thing, but finding a decent financial advisor that can offer their assistance on all things finance is another. In short, it isn't mandatory for you to have an advisor. However, it will be much quicker and save you lots of hassle if you use someone who already has relationships with lenders that can understand professional contracting.
After the latest mortgage market review, the commissions paid by lenders to financial advisors decreased. Therefore you can expect to be charged an arrangement fee of a few hundred pounds by the advisor, which is only payable once the mortgage has been arranged and you have bought your home. With this in mind, you can feel safe in the knowledge that you've got a professional on side who you won't need to worry about paying until they've succeeded in their job. It's a win-win situation and will save you a lot of time. And as all contractors know; time is money!
The entire process from your first engagement with a financial advisor to having an official offer of funding - legally confirming that the money is in place - can take up to six weeks or more; and lenders with the highest success rates can take even longer. The good news here is, you do have choices to make and it's completely down to you how you go about it. In other words, you don’t have to use the company you are currently banking with, and the truth is, they are unlikely to offer you the best interest rate.
Whether you are looking to buy a new property or remortgaging an existing one, you want to ideally start engaging with an advisor at least five to six months beforehand.
Aim For A 10% Deposit
Before you even think about applying for a mortgage, you should ensure that you have a deposit of at least 10%. The 100% mortgage is sadly a distant memory, and whilst 10% is the most reasonable deposit, anything up to 25% is ideal. If you have not managed to do this, or if you don’t have an existing property which is worth more than you paid for it, then there are still mortgages out there - but you will pay a higher rate. The more you manage to save – the better it’ll be for you in the long run. Contractors also won't necessarily be entitled to any of the recent 'Help To Buy' schemes that the government have set up.
However, this is something worth checking with your chosen mortgage specialist and isn't something you should sweep under the carpet without thinking about. Applying for a mortgage isn't a quick process for anybody, no less a contractor. So it's vital to take every option into consideration. This is the most valuable tip you need to bear in mind.
Be Realistic About Your Limits
Ultimately, you need to be realistic about what mortgage repayment you can afford to pay each month. The figure that a lender is willing to offer you, based on a multiple of your contract rate, could result in higher repayment figures than you can actually afford, due to other financial commitments you have; so be consistently sensible. You also need to consider how often you usually work and how much you plan to be working throughout the course of the next few years following your mortgage acceptance. It's up to a contractor how much they work, so it's down to you how easy you want to make it.
Ensure Your Contract Is Updated
This is something that is hugely important in a contractor's regime, regardless of mortgage applications or not. Why? Because when you're dealing with mortgage lenders, you will need to have a copy of your signed contract to hand - at all times - which is completely up to date. This must clearly state the length of your contract, and your current contract rate. Without it, you'll likely be laughed out the door.
Keep Your Credit Rating Up
Have you been paying laptops off ever since you were 15? Do you have a few credit cards that you pay off every month? Or any appliances that you're slowly paying for? Good.
Don't look upon these types of debt as a negative, because when it comes to applying for mortgages or loans, they're a massive benefit IF you've been loyal and reliable.
Lenders are much pickier these days about credit rating. Even if you have a decent income and an ample deposit, your credit rating could still let you down. Ensure that you don’t slip up by something as easy as missing a major payment. Keep the credit rating clean – and lenders will have zero excuses to refuse you.
Being a contractor doesn’t mean you can’t still get a good deal at a mortgage; you just have to be a bit wise about it and clue yourself up on the facts first. A good way to start, is to look at what KnowNetwork can offer you.
A KnowNetwork membership delivers a host of bespoke benefits, privileges and rewards exclusively tailored for your contracting work-life and lifestyle. If you're a contractor or know someone who is, don't miss out. Take a look here: www.knownetwork.com/join
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