Mortgages were initially created so that people with jobs would be able to buy a higher priced item like a home, since generally a home costs three to four times a person’s annual income. Unfortunately, those who are self-employed, such as contractors, don’t have what is deemed a “normal” job since they don’t get paid a fixed rate and don’t have the promise of an employer paying them a steady income.
The irony to this is that often contractors make two to three times more as self-employed workers than workers who work for a fixed rate, but because of this view of the self-employed, obtaining a mortgage can be difficult for contractors. Lenders typically view these workers as having a higher potential for defaulting on a loan due to the possibility of not receiving enough work and or losing their business all together.
Contractors have very few rights when it comes to unemployment, so if a period of unemployment is experienced, it can cause extreme financial difficulty and options are limited. Because contractors are often viewed as unstable borrowers, mortgage lenders usually don’t want to work with contractors.
There are some lenders though that are willing to provide finance for contractors, and there are now many that specialise in loans that are especially for self-employed workers including contractors. These specialised loans are specifically designed to fit around a contractor’s financing needs, and it simply just takes a bit of research to find these lenders. The products offered are typically designed with larger room for flexibility, giving contractors the chance to pay more on their loan when they receive a very well paying contract, as well as offering the option to use a payment holiday in order to extend payments if the contractors experience periods of unemployment.
Contractors may also want to look into obtaining a loan from a mortgage broker. Mortgage brokers are a good resource because they are specifically trained to look at a variety of mortgage products available within the mortgage market. Additionally, they are familiar with what questions they need to ask a prospective borrower in order to verify income and assess stability. This allows the mortgage brokers to find products that are best suited for the potential borrower’s needs, and take the time to evaluate the contractor’s entire financial information, including the worker’s employment history and credit file.
A major concern for people that are “outside of the box” is if they can borrow over 80% of the value of their property. This is because over this amount, approval from a Lenders Mortgage Insurer (LMI) may be required. If you apply with the right lender then this problem can be avoided as they can sign off the approval on behalf of the mortgage insurer, using their own lending policy.
When contractors use these options, having this room for flexibility can be extremely useful for them to obtain a contractor mortgage. Flexibility is one of the most important factors for any contractor who is seeking a mortgage, as they don’t have the typical secured income sources that others have. The flexibility to take a repayment holiday during unemployment or to overpay when extra income is received are perfect options for the income of contractors.
Using the overpayment option is an extremely attractive offer and should be used as often as possible. Doing this also gives the contractor a higher chance of being approved for extended payment holidays should a period of unemployment ever be experienced. Using this option also helps save on interest, and the amount of interest that is saved can prove to be a great investment. First of all, it becomes free of taxation. Secondly, if one were to overpay on their mortgage instead of putting it into a savings account for example, the interest savings on the principle loan amount is higher than the interest accrued in the savings account. Of course, it’s always a good idea to take some money and put it away just in case a financial emergency arises and then the contractor’s mortgage has a redraw facility or an offset account for their mortgage.
Searching for mortgage lenders and brokers who specialise in working with self-employed workers like contractors are easy to find with just a bit of research. Often these professionals advertise in industry or trade magazines, or a contractor can network with other contractors in the business to find out if anyone they know has a recommendation.
Just because one is self-employed and doesn’t have the stereo-typical income that other workers have doesn’t mean that they should be penalized. Often self-employed workers not only are denied for loans, they are also presented with large interest fees and punitive fees when they do receive a mortgage. In addition, they sometimes get offered self-certified mortgages, which are full of those outlandish interest fees and more.
As a self-employed contractor, don’t lose hope in procuring a mortgage. There are options out there and as more and more people find ways to become self-employed, the financing options for the self-employed will only continue to increase.
Traditionally, this has never been a simple process, and can be downright confusing due to lenders policy restrictions such as: document translation issues, verifying employment and work history, type of deposit saved and your foreign credit history – just to name a few!
The first place to start when building a home is by viewing some existing homes and looking at the way they are designed. What do you like? What don’t you like? Get a feel for what kind of design you need and in particular, what catches your imagination.