Contractors Can Obtain Fair Mortgages

Contractor with his familyMortgages 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.

Australian Expats Mortgage

Are you an Australian Citizen living overseas?

Did you know that Aussie Expats are able to apply for a mortgage in Australia?

Australians living in the UKTraditionally, 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!

No wonder Australian expats are often confused when it comes to finding a mortgage in Australia! However thanks to specialised Mortgage Brokers such as The Home Loan Experts, obtaining a home loan for Australians living offshore has never been easier. You can find out more about Australian Expat Mortgages on their website.

How much can I borrow?

If you are an Australian expat living and working abroad you may have been told by financial institutions that your loan amount will be limited to 80% of the property value. This is quite simply – not true!

If you apply with a lender that regularly works with non-residents, then you may actually be able to borrow up to 95% of the property value. This means that you will not have to exhaust your existing capital, and you can receive substantial tax benefits due to negative gearing.

In addition to this, some lenders will give you the same discounted interest rates as if you still were living in Australia!

How can I prove what I earn?

If you live in a country such as the United Kingdom (UK), Ireland, Europe, United States of America (USA), Dubai, Canada, Singapore, New Zealand, South East Asia and China we can verify your income in a various number of ways. Other countries are assessed on a case by case basis, with lenders favouring countries with joint tax agreements with the Australian Government.

If your tax returns and pay slips are in English, then these will be accepted in Australia. If they are in a foreign language, the documents may need to be translated by the consulate in your country – however, many lenders have credit assessors who have translators in-house, so this may not be a concern.

Some lenders will even consider accepting a letter from your employer as confirmation of your employment!
As you can see, every lender looks at your documents and application in a completely different way, this is why it is so important that you choose a lender that has requirements to match your situation. This way you will avoid unnecessary delays in getting your mortgage approved.

The most common mistake people make is to just apply with a bank without knowing their policy for non-resident borrowers.

Can the bank take foreign property as security?

No, Australian lenders will only take Australian properties as security. If you have a property in Australia or are buying a property in Australia then this is not a problem.

However, if you are trying to apply for a loan to buy a property in another country and you are using that property as security for the mortgage, then it is best to apply for your loan in that country. You can apply for an Australian loan to release equity from your Australian property to be used as your deposit for a foreign property.

What do I do from here?

Australian Expats living miles from home are of the assumption that it is a painful process applying for a home loan in Australia. However thanks to advances in technology, it is now easy to apply for your mortgage from a foreign country.

A specialist mortgage broker such as The Home Loan Experts will be able to assist you with your entire home loan application, from start to finish, with minimal hassle. Please refer to their Australian Expatriates page for more information.

Lenders Mortgage Insurance

The Biggest Fee For Your Home Mortgage

Calculating LMI PremiumPeople who have not been affected by the housing market crisis in Australia may now be looking for the opportunity to purchase a home. Because of the global market downturn, property values and home prices have dropped throughout the world.

This means that there are big gains to be had for those people who can afford to purchase a home. However, when you find your home, there are a few things you should remember before jumping in to a mortgage head first. There are a few fees that are associated with your mortgage other than the monthly payment. For those who have a small deposit and need to borrow money from a lending institution, he or she will most likely have to pay lender’s mortgage insurance.

What is Lender’s Mortgage Insurance?

Lender’s mortgage insurance, or LMI for short, is a fee charged by the lender of funds in home loans. This fee is used to help protect the lender’s interest in the loan. For instance, if you have borrowed $200K and could not end up affording that amount, you would default on the loan.

The lending institution would not only be losing the actual loan itself, but all associated costs for originating and closing the loan. Therefore, borrowers are charged an upfront fee to help off-set any costs associated with a loan in default.

Do I Need It?

The answer is both yes and no. For those individuals who can afford a certain down payment on their loan, usually over 20%, he or she does not always have to pay an LMI premium. LMI is based upon one’s risk assessment for loan repayment. For example, those who only have a minimum down payment, possibly 3%, are considered high risk because he or she has not been able to save a significant portion of money for their purchase.

Oppositely, those who have a large down payment available and a solid job history may get the LMI fee waived. This is up to the discretion of the lending institution. Also, one should keep in mind that LMI insurance does not cover the borrower (home owner). This insurance is paid by the home owner as a requirement by the lender. Some loans that may require LMI would be:

- Property Investment Mortgages
- Construction Mortgages
- Owner/Occupier Mortgages

Please note that if you are making interest only repayments then some mortgage insurers will load your premium. As your loan will not be reducing over the term, there is a higher risk to the insurer and so a higher premium is charged.

What is the Cost of LMI?

When a lender starts to talk about fees, many home owners get a nauseous feeling in their stomach. One of the most feared sounds is that of the calculator adding document fees, attorney fees, LMI fees, and all other costs associated with loan approval that makes the ribbon on the adding machine sing.

However, LMI does not carry the unpredictability as other fees because it has been government regulated. LMI fees depend on the amount of the home loan, how much money was put down, and the length of the loan itself.

One of the leading providers in Australia for LMI is Genworth Financial. Genworth Financial can provide its customers with the purchase of LMI and help with the many other aspects of home mortgages. You cannot choose if your lender uses Genworth LMI or QBE LMI, however you can apply with a lender that uses these particular insurers, thus ensuring you get the lowest possible premium.