How do contractors get a mortgage? Have you tried already and been told to wait 2-3 years?
Please read the below article which has been kindly supplied by Contractor Friendly Mortgages a specialist mortgage broker with over a decade of experience helping contractors secure mortgage funding. Who have also kindly agreed to give our users a £100 discount if you quote OutsideIR35Roles.com
CONTRACTOR MORTGAGE GUIDE
Securing a mortgage that is right for contractors can be a daunting and difficult task in this day and age. If you are a contractor and have some experience in attempting to buy your dream home, I’m sorry for what you’ve had to go through…however, I’ve got some good news, you’ve landed on an article that will help you take the necessary steps towards your goal and get the keys to your dream home!
At Contractor Friendly Mortgages, we’ve been in the business advising and assisting people in your work situation for over a decade. We are purely focused and dedicated to contractors and freelancers just like you and we know every single situation can vary.
As contractor’s circumstances vary a great deal, securing a mortgage can become a mountain climb without a harness. Therefore there are a few questions you need to ask yourself to figure out if you are 100% certain you’re ready for the climb!
- Why do you want to own a home right now?
- Do you have enough for a deposit without having to worry about money afterwards?
- Is business going well enough that you will be able to keep up with repayments in a years’ time?
- How does owning a home fit into the foreseeable future?
- Can you afford the home you want or are you settling for a place because you feel obliged to own a home due to other factors?
Ponder these questions deeply, meditate if you have to! If by the end you can honestly answer all of them and feel 100% ready to get started, I promise the process will be easier than you think and this guide will be the perfect place to start the process.
In this guide, I’m going to go into detail on the following points:
- Why exactly, is it difficult for contractors to get a favourable mortgage the traditional way?
- What needs to be done for contractors to get a favourable mortgage?
- Steps you can take right now to help improve the quality of the mortgage you can acquire.
- General things to consider that will keep it as stress free as possible
- How Contractor Friendly Mortgages can help
Why exactly, is it difficult for contractors to get a favourable mortgage?
If you have already attempted going directly to a bank or building society to discuss your options as a contractor, I’m sure you left feeling disheartened and confused as to why they require 2-3 years of company accounts to get a great mortgage deal. The reason they do this simply comes down to them needing assurances that you make enough money to pay back the money you borrow.
As I’m sure you are aware, this causes major issues with contractors that are just starting out or have recently started a new business. As this is becoming more and more common, lenders are failing to keep up with the growing trend, causing people like you to feel helpless and lost. The honest truth is, they’re completely wrong and there is no reason you cannot secure a favourable mortgage with competitive rates, even if you’ve only started contracting within the last month!
What needs to be done for contractors to get a favourable mortgage?
Imagine a friend of yours needed to borrow some money to purchase something, but looking at how much they want to borrow in contrast to how much they earn monthly, makes you feel like they will not be in a position to pay it back to you. This is how a lender sees a contractor; this is where specialist mortgage brokers like Contractor Friendly Mortgages come in.
Lenders see every potential borrower as a risk, but you need to be a good risk! To achieve this, a specialist mortgage broker takes the time to learn about your current situation, how you’ve worked in the past and how you will work in the future.
This allows them to construct an application from the ground up, demonstrating your future employability and showing lenders that you are a good and healthy risk. This can even apply to you if you have only just landed your first contracting job (congratulations if you have!), as previous employment can be taken into consideration too. Also, an experienced broker will know exactly which lender to approach to get you the most favourable deal based on your unique situation.
Steps you can take right now to help improve the quality of the mortgage you can acquire.
A monthly budget
Looking at houses to buy, what kind of price range do you think you can afford? This is essential when coming up with a monthly budget. Take into consideration how much money you are spending every month on living costs, do you want to be able to afford a more expensive home? Can you cut back on any non-essential costs? Maybe it’s time to finally cancel the Netflix account you barely use? The monthly budget doesn’t have to be concrete but having a ballpark figure will definitely help when deciding which type of deal you want to go for and in turn, have a higher success rate of you securing a favourable mortgage.
How’s your credit score looking?
Your credit score can be a huge contributing factor when determining if you are a good risk. I like to look at my credit rating like a dating profile, but instead of trying to attract other people, I’m trying to get banks to lend me money. Would you lend money to somebody if they had a history of never paying it back to somebody else? I didn’t think so and your credit score gives a first impression that may be difficult to shake if it makes you look unreliable
Get your ducks in a row
Having all of your documentation prepared before approaching a broker will make the process much easier to start with them. Ensure your CV is as up to date as possible, have as many years of accounts if possible printed and organised by date, passport or driving license, utility bills of where you currently live and bank statements dating back at least 6 months. Having these documents ready will allow your new broker to quickly learn about your situation and know best how to get the ball rolling.
General things to consider that will keep it as stress free as possible
It takes time
This may seem like an obvious point, but it can be difficult to remember while you’re deep in the process of trying to get on the property ladder. My advice is to remind yourself to be patient, even when looking for a home, take your time, research, and be 100% certain you’re making the correct decision. This is also what having a mortgage broker is for, any doubts or questions you need answered can be directed towards them and if they are doing their job correctly (which we do), you should be well on your way to a stress free process.
Keep an open mind
You probably already have an image of your dream home, down to the very last detail of where you are going to put your favourite potted plant. Although it is good to have an idea of what kind of home you want to own, being too picky and choosy can make the process more stressful.
Realistically, you will be unable to find a home that ticks every single box, which is why having an open mind; will be highly beneficial to your sanity. Not to say that you need to settle for something you don’t want, but don’t turn down the prospect of a house because of the direction the toilet is facing (unless it’s facing an open window).
Research, research, research…then research some more
Let’s say you’ve found a home so dreamy, you couldn’t imagine not living there. There are still other factors to consider outside of the home. Are there any schools nearby if you have children? Is there space to park a car? Where’s the nearest supermarket? Is the area considered safe at night? What’s the area like generally? These are only a handful of things to check, make sure there are no last minute realisations that may make you regret taking a mortgage out on the property.
Find a broker that specialises in contractor mortgages
As stated previously, the way in which lenders evaluate potential borrowers doesn’t favour contractors at all. Instead of basing your income on 2-3 years of your company accounts, they will use bespoke contractor underwriting which will allow us to show income based off of your day rate, meaning the company account records are not needed. This is vital when approaching lenders. They will also have deals with lenders that banks and building societies do not have access to, which are tailored made for contractors like you.
What documents do lenders typically ask to see?
- Bank statements
Lenders will typically need to see your last 3-6 months bank statements, both personal and business if you are self-employed.
Why do some lenders need to see a CV? If you are a contractor, some lenders like to see evidence of your work history to see how likely you are to get another contract if the current one ends. Make sure this is up to date in case it is asked for.
Identification will always be asked for, please make sure your passport/driving licence is in date.
- Proof of deposit
The lender and the solicitor will need to see evidence of your deposit if a purchase.
- Proof of income
Umbrella Contractor: This is typically evidenced either via payslips or the contract.
Limited Company Contractor: This is typically evidenced via the contract.
Sole Trader: Either via SA302’s or your contract.
PAYE: Payslips, or again contract if you are on a day/hourly rate.
- Tenancy Agreements
If you own any buy to let properties, the lender might ask to see a copy of the tenancy agreement you have in place with your existing tenants. Make sure they are up to date in case they are asked for.
How has the pandemic changed the way banks look at individuals who want to get a mortgage?
There have been quite a few changes, especially if you are self employed or a contractor. Banks are now typically asking for a lot more documents. It is so important if you are self-employed or a contractor/freelancer to use a specialist broker.
- Evidence you have a sustainable business, they now consider what sector you work in and how this was affected by the pandemic.
- Have you taken a bounce back loan?
- Have you taken the self-employed grants from the government?
How Contractor Friendly Mortgages can help
Contractor Friendly Mortgages was founded to offer a route for self-employed contractors like you who struggle to get a mortgage with the high street bank, providing a truly personal and professional service to build long term relationships.
By using the bespoke contractor underwriting mentioned before, we can help you borrow up to 300% more on your mortgage, even if you’ve left a full-time job of 10 years to start your own business!
When you work with us, we take the time to learn about you, to carefully understand your unique situation and tailor a mortgage offer that fits you to a tee. Being in the contractor mortgage business, we’ve carefully built up a plethora of relationships with all types of lenders, allowing you to have the best and most exclusive deals on the market at your finger-tips. No question is too big or small; we are here to make everything crystal clear for you.
A few benefits of working with us:
- We offer deals with 95% loan to the value of a property
- Borrow up to 5x your annualised income
- Residential and Buy to Let Specialists
- Calculate your income based on your contract day rate
- Advise you how to use Government Help To Buy
- Remortgages and Purchases
- Whole of market advice
- Umbrella/Sole trader and Limited company experts
Become part of the Contractor Friendly Mortgages family and let us start this exciting journey with you. And remember don’t forget to quote OutsideIR35Roles.com for your exclusive £100 discount. We can’t wait to hear from you.