1. Always use a contracting mortgage broker
Many contractors are convinced that they can obtain a mortgage on their own without the help of a contractor mortgage specialist. This attitude changes quickly after they have approached several banks only to be turned away. The problem lies with many call centers or local bank branch staff. There is nothing worse than a young graduate who tells you, quoting their standard script, that you cannot get a mortgage because you do not have enough income to pay the home loan you are applying for. Or a Delhi-based call center that just doesn’t understand your employment situation as a contractor. Unfortunately, they are not trained to understand the hiring environment you work in, much less the business structures and payment mechanisms that contractors use. So if you are fed up with being asked questions that have no relevance to your employment situation, such as employer details, evidence of time spent, pay stubs, etc., our recommendation is that you hire an experienced mortgage contractor. in arranging contractor mortgages.
2. Secure a mortgage based on your contract rate
If you’re lucky enough to find a lender who’s unfazed after you’ve told them he’s a contractor, then they’ll want to assess your affordability using their freelance criteria for joint-stock directors. This means that they will want to evaluate your home loan based on a limited measure of your director’s compensation, which may not fully reflect the total earnings available to you. They will need to view three-year accounts, which exclude contractors who have not worked long enough to produce three-year audited accounts. For those contractors that can provide three-year accounts, they will be evaluated on the physical drawings they are taking from their limited partnership, regardless of retained earnings.
Most contractors who operate through their own limited partnership do not earn all of their annualized income from salaries and dividend payments. For tax purposes it doesn’t make sense, instead, most contractors operating in a tax efficient manner earn a minimum wage and also restrict dividend draws to avoid higher tax rates. While this makes perfect sense from a tax planning perspective, it has the unintended effect of reducing the amount that contractors are eligible to borrow based on the standard criteria used by most lenders.
Contractor Mortgage Specialists have worked hard over the past 10 years to develop strong relationships with major banks in relation to streamlining what qualifies as relevant earnings for contractor loan purposes. They have influenced the change in the underwriting criteria of contractors.
Currently, there are a number of lenders who will provide mortgages to contractors based on the gross proceeds of the contract. The home loan can be up to 4-5 times the annualized earnings on your contract. This means you don’t have to rely on the traditional method of using accounts.
To calculate how much you can potentially borrow based on contractor-based underwriting, you must multiply your daily contract rate by the number of days you work in a week followed by 48 weeks. In most cases, you can get a mortgage of up to 4 times this figure. For example, a contractor with a daily rate of 500 can potentially borrow:
500 / day x 5 days x 48 weeks, then multiply the product by 4 = 480,000
The following documentation is required to package a contractor mortgage application:
1. Your current contract sets your daily / hourly wage.
2. CV that highlights your skills and experience
3. Completed “Fact Find” questionnaire (required for all regulated mortgages)
3. Maintain a good credit score
Many contractors don’t realize the importance of maintaining a good credit score. This score can be the difference between the lender who accepts your application or rejects it.
The first step in the mortgage process is to obtain an “agreement in principle.” This involves the lender conducting a credit search to determine your credit score.
Regardless of whether you can deposit a large deposit or even large income, lenders will reject your mortgage application if your score is low. Today’s economic customer has forced lenders to adjust their criteria and select applicants with good credit scores.
So be sure to keep a clean credit history to avoid giving the lender an excuse to say NO.
You can make sure your credit rating is good by taking the following steps:
• Make sure you are registered in the electoral roll of your city council.
• Do not apply for a lot of credit in a short time, for example, mobile phone contracts and credit cards. This will leave a mark on your credit history.
• Cancel any credit cards you don’t use and try to pay off any existing debt.
• Paying your bills on time is critical as lenders hate to see late payments.
• If you don’t have a loan yet, get one. Banks must ensure that you have a history of successfully managing credit, staying within your limit and making payments on time.
