In conventional mortgage applications, lenders ask for information about employers, how long contractors have worked for those employers, as well as contractors’ salaries. This helps lenders to assess the affordability of contractors better.
But when it comes to contractors, this process often becomes more complicated because they do not have fixed salaries due to the nature of their contracts. In general, contract-based work does not mean constant, regular, and monthly income, and there is always a problem for contractors to find new contracts after the current contract ends.
The duration of the contracts and different rates make it difficult to calculate the contractors’ affordability. Therefore, lenders often consider contractors to be riskier customers than conventional employees. This means contractors will go through a different mortgage application process.
The Benefits of Getting a Contractor Mortgage on a Fixed-Term Contract
In recent years, lenders have become more risk-averse. Over the years, lenders’ policies toward contractors have become much stricter, making it more difficult for contractors to get mortgages at competitive rates. In conventional mortgages, contractors with one-year accounts seeking mortgages faced many challenges.
But today, a large (and growing) portion of the workforce needs mortgage facilities and is looking for a more flexible plan. In this regard, several lenders have begun to consider contractor mortgages with one-year accounts and have designed special processes to suit the needs of contractors. Getting a contractor mortgage on a fixed-term contract is one of these new plans that brings many benefits to contractors. The advantages of getting a contractor mortgage on a fixed-term contract are:
- Getting a contractor mortgage for new contractors
Today, contractors do not have to prove that they have been working as a contractor for years or provide their accounts for previous years. Many large lenders adjust the mortgage based on the contractors’ contract, not the years they have worked as a contractor. Therefore, it is sufficient for contractors to provide documents related to their current contracts and other lenders’ required documents.
- Estimating the amount of the mortgage
Lenders like to have an overview of contractors’ complete financial status. They consider monthly income, investment income, retirement income, credit, and contractors’ debt. These items help the lenders to calculate the contractor’s affordability to repay the instalments and the contractor’s mortgage amount. But today, lenders’ evaluation criteria in evaluating contractors’ affordability are their daily rate and the amount of their current contracts. In this way, the real affordability of the contractors is estimated in real terms, and the contractors can borrow a higher amount.
Contractor-friendly lenders typically consider contractors’ day rates. They multiply the contract rate by the number of days in the week (usually 5 days) and the number of weeks in the year (usually 48 weeks) to get an indicative figure for annual income. Then they multiply this number by 3.5 to 5 times to calculate the amount contractors can borrow. But in general, each lender has its criteria and methods for calculating the annual income of contractors. Therefore, contractors are better off talking to a contractor mortgage broker about the right lender for getting a contractor mortgage.
- Ease of submitting documents
Preparing, updating, and presenting lenders’ required documents is always one of the main concerns of contractors. Conventionally, they must spend much time and energy preparing, updating, and providing lenders with required documents. But today, lenders are operating in the market who are familiar with the type of activities of contractors and are aware of their concerns. Here are some of the lenders’ required documents for getting a contractor mortgage on a fixed-term contract:
- Contractors’ current contracts – Lenders need to see how much contractors are earning now and how long their current contract is. If the contractor’s contract expires shortly, lenders may want to see evidence from the contractor that the contract has been renewed.
- Bank statements – Bank statements for the past three months to prove that contractors have earned regular and adequate income for the mortgage they are applying for.
- Resume of contractors – The resume of contractors proves their work history in their speciality and shows the stability of contractors’ income.
- Proof of identity – All lenders must know to whom they are lending. Lenders also check the credit score and records of contractors.
Getting a Contractor Mortgage on a Fixed-Term Contract
Getting a mortgage is always influenced by the lender’s assessment of the contractor’s income and credit risk level. But as a contractor, getting a mortgage can be more challenging and time-consuming than when a typical employee applies for a mortgage. In general, finding the right solution for contractors depends on the type of contract, credit status, and contractors’ experience.
But, there are measures to increase the chances of getting a contractor mortgage on a fixed-term contract:
- Checking the credit score
Contractors should check their credit status before applying for a mortgage.
- Reducing contractual gaps
Lenders are still concerned about long gaps between contractors’ contracts. For example, if there are several gaps between contractors’ contracts in two years, likely, lenders will not consider reasonable rates for professional mortgages. Most lenders are happy with one or two six-week intervals between contracts over two years.
- Saving for a larger deposit
One thing that can significantly affect contractor mortgage rates is the amount contractors pay as a deposit. Generally, there is no set amount for the level of deposit that the contractor must pay to the lender, and a minimum of 5% can be sufficient. However, the larger the deposit, the better the contractor mortgage rate. A larger deposit usually allows contractors to access lower rate deals and more flexible repayment amounts.
- Update documents
If the contractors use the current fixed-term contract or the accounts of their previous company in applying, it is better to ensure that the relevant documents are up-to-date and complete. Also, contractors need their identification documents, verified addresses, and bank statements.
The Importance of Using AWS Mortgage Specialist Advisors
AWS Mortgage contractor mortgage advisors work with several lenders who understand contractor processes and are familiar with their financial flow. The specialist lenders AWS Mortgage advisors work with review contractors’ gross contract rates on an individual basis. AWS Mortgage specialist advisors can thoroughly assess contractors’ current circumstances and needs and determine which lenders are willing to consider contractors’ applications.
Also, it doesn’t matter how long they have been working to determine contractor mortgage options. AWS Mortgage advisors review all the documents they need to get a mortgage at a competitive price and guide contractors to the most suitable lenders.