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Contractor mortgages - the basics

A contractor mortgage is one of the best ways to buy a home if you are self-employed or an individual trader. Mortgage lenders are typically hesitant to approve a mortgage to someone who has a fluctuating income. This can make securing a mortgage challenging if you work as a contractor and get paid a ‘day rate’. Therefore, a contractor mortgage is a solution to getting on the property ladder.

This article contains the basics of what you need to know about successfully applying for a contractor mortgage.

What is a contractor mortgage?

A contractor mortgage is a money loan to buy a home for someone without permanent employment. The term contractor applies to self-employed contractors, workers on fixed or short-term contracts, and agency workers. The mortgage lender will often base their decision on the contract rate, not your accounts. Therefore, all you need to do to qualify is show a reliable income from your contract work.

How to get a contractor mortgage?

Applying for a contractor mortgage is like applying for a standard mortgage. However, the lender will base their criteria on your daily rate or average earnings over a period of time – typically 3 to 7 months. They will then use this calculation to determine how much you can afford to borrow.

It’s always wise to seek financial advice from a broker who specialises in contractor mortgages before applying for a contractor mortgage. Each lender bases their decisions on various criteria and with expert help and guidance, you can avoid wasting time and effort on applying for a mortgage with a lender who’s criteria you do not fit.

Work history criteria when applying for a contractor mortgage

You can apply for a contractor mortgage with as little as one day’s experience as a contractor. However, your previous work history may also be a factor that a lender takes into account if you do not have a long history of contracting. Some lenders will also treat different professions or contract types more favourably, and again by using a professional financial adviser who specialises in contractor mortgages, you can be certain that you are getting the very best deal and product for your specific needs and requirements.
Here are some ways to determine if you would qualify for a contractor mortgage:

  • Day rate contractors: The mortgage lender will base their decision on your day rate and the number of days you work per week.   Lenders will often like to see that you have contracts in place covering you for at least the next 3 months OR that your previous contract has been renewed.  However, even without these requirements being met, there may still be options available to you.
  • Fixed Term Contractors: This is where you are employed on on a PAYE basis over a set period of time.  Similar to day rate contractors, lenders will often want to see that you have at least 3 months of the contract remaining, that your previous contract has been renewed or you have a track record in the same line of work.
  • Agency workers: The mortgage broker or lender will typically require 12 months of relevant work history.
  • Zero-hours workers: Like with agency workers, you will often need to show 12 months’ worth of work history in your industry.

How to improve your chances of getting mortgage as a contractor

There are several ways you can improve the chances of your mortgage application being accepted. In addition, there are steps to take to ensure better mortgage rates and lower monthly payments. Even if you are a first-time buyer, there are a wide range of mortgages for contractors.

Here are some ways to make getting a contractor mortgage easier:

Increase your deposit. You can increase your chances of getting a contractor mortgage by borrowing less. You may also get better interest rates if you can afford more than the minimum deposit.

Maximise work time. Ideally, it’s best to minimise breaks in the previous 12 months before applying for a contractor mortgage. However, there are plenty of options to qualify for a mortgage. Therefore, it’s always best to speak to a trusted broker to get a deal on a contractor’s mortgage, even if you think you don’t qualify.

Improve your credit score. One of the best things you can do to get approval for a mortgage as a contractor is to boost your credit rating. So, apply for a free credit report and look for ways to get a better credit score. It’s also a good idea to pay off any outstanding debt.

Getting a mortgage without permanent employment doesn’t have to be challenging. Speak to a financial expert at {insert phone number} to see how you can secure an excellent deal on a contractor’s mortgage and secure financing to buy your new home.

Please note:

  • Your home may be repossessed if you do not keep up repayments on your mortgage.

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