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The employment outlook has changed dramatically over the years. Recent studies show that the self-employed sector is proliferating. With the expansion of contractors, freelancers, and self-employed more than any other segment of the labor market. It is anticipated that different areas of the industry will somehow include these types of jobs. However, lenders are also focusing on finding qualified contractors. There are lenders in the mortgage market today who have worked hard to build long-term relationships with contractor, regardless of the type of job they are in.
5 Main Challenges for Contractors To Qualify For A Mortgage
But contractors still face many challenges in getting contractor mortgages. In general, five reasons to answer why contractors think they are not eligible for a mortgage are:
- Non-permanent contracts – Many high street lenders identify contractors as high-risk borrowers. But there are still lenders who consider several factors to assess their affordability. Contractor-friendly lenders consider indicators such as expertise, the field of activity, work experience, and other factors to determine contractors’ qualifications.
- Low credit scores – Lenders always welcome borrowers who meet the criteria for getting a mortgage. However, lenders are more likely to prefer low variation income borrowers. But this does not mean that contractors whose nature of work is variable are not exempt. Therefore, it is essential to identify the lenders aware of how the contractors perform and who is examining their mortgage application uniquely.
- Deferred mortgages – The ability of contractors to repay mortgage instalments is one of the critical indicators of lenders to repay mortgages for contractors. Due to their work nature and the income fluctuations, contractors may repay some of the mortgage instalments later than scheduled. So this is a negative score for them.
individual competencies of the contractors
- Break in Contracts – If there is a time gap between contractors’ contracts, lenders identify the contractors as a high-risk contractors. But there are lenders in the market who take a case-by-case approach to underwriting. Which means that they evaluate applications based on the individual competencies of the contractors. It is usual for borrowers to have a time lag during these contracts. But it should not affect their earning money.
- First-time buyers – even if the contractors are new to their field, they still have a chance to get contractor mortgages. Experience and analysis of potential market volume related to contractors’ type of activity are factors to assess their affordability. If contractors can prove this to lenders, along with the daily rates they charge customers, many lenders are willing to pay them back.
10 Tips To Help Contractors Get A Mortgage
Given the challenges mentioned above for contractors, here are 10 tips to help contractors get a mortgage.
- Improving credit score – One of the first things lenders consider when evaluating a contractor mortgages application is checking the applicants’ credit status. Any unpaid or deferred instalments reduce the contractors’ chances of getting a mortgage or limit the amount of mortgages they can get. Therefore, contractors must evaluate their credit status and correct any possible negative points before doing anything.
- More deposits – Many lenders consider at least 10% or more as a deposit to pay off mortgages for contractors. Lenders have also become very risk-averse in the post-Covid-19 era and have increased their deposit rates. So the more contractors can save and pay more deposits, the wider the products they deserve and the greater their chances of getting a larger mortgage. Interest rates will also be significantly reduced; because if the deposit is paid more than 20%, the lender’s risk for lending will be reduced considerably.
- Improving the affordability to repay the mortgage – Many contractors put as much financial pressure as possible to buy the property they are looking for. This is understandable, but the ability of applicants to repay their instalments on time while their other mortgages are in place is also important to lenders. Contractors are also paying additional costs now, and combining these costs will be difficult.
up-to-date contract documents
- Availability of up-to-date contract documents – Many contractors decide when updating their mortgage applications to update the account information and required documentation. However, preparing the contractors’ documents will take much time because they have to make sure that all the details of the contracts are included in the submitted documents. Details include employer approval, work rate, and other information directly related to the contracts themselves. Also, the amount of income of contractors in the last two to three years is significant for lenders. Therefore, collecting and updating information about contractors’ bank accounts, both personal and corporate accounts, is one of the critical steps in getting mortgages for contractors.
- Avoiding gaps in contracts – Gaps in contracts mean fluctuations in contractors’ income and therefore increase their credit risk. This will not be acceptable to lenders. If the contractors are more than 6 weeks apart from their contracts and their company accounts are not enough to pay the costs in this period. This is considered negative. Given that many lenders take into account the contractors’ accounts for the last two to three years. The existence of a gap between contractors’ contracts will significantly increase their credit risk. Lenders, however, prefer to review and evaluate accounts for recent periods of contractors.
Contractors apply for a mortgage
- Doing the preliminary application research – Before contractors apply for a mortgage, they must determine their accurate expectations for the mortgage rate, terms, and amount. There is information on products related to contractors’ mortgages in the market. And contractors should know the difference between them and examine their risks for getting mortgages. For example, there may be times when contractors have extra cash, and you prefer to use it to make up for your arrears. Many contractor mortgages products allow you to pay extra, but others do not.
- Accurate estimation of additional costs and penalties – In recent years, an increasing number of lenders have been getting additional costs for contractor mortgages applications instead of raising interest rates. Setup costs, booking costs, appraisal costs (to determine the value of the property buying), early repayment costs (these costs can be significant), annual charge rate, etc., are among the costs of the process that some lenders may lay down for contractors. These costs can often be added to contractors’ mortgages and increase the actual cost of the mortgage.
- Find a lender to use annual contract rates – In the mortgages for the contractor market. Some lenders use the annual contract rate to calculate the amount of contractors’ mortgages. Some lenders look at the total payroll and dividends paid based on accounts for the past two to three years. Using the annual contract rate is better because lenders can better picture the contractors’ affordability to get a mortgage.
Using a Contractor Mortgage Broker
- Proof of more extended contracts – One of the reasons lenders are sometimes reluctant to lend to contractors is a common misconception about work habits. This focuses on the erroneous assumption that contractors have no permanent income. However, this is not the case for many contractors who work for an employer for long periods. In this case, the contractors must provide evidence to the lenders to prove this. This means that contractors with a long history of working with an employer will be more suitable mortgage candidates from the lender’s point of view.
- Using a contractor mortgage broker – To use the services of contractor mortgage experts and advisors. Many contractors contact financial services companies and the banks in which they have an account. Others use popular mortgage comparison websites. However, due to the type of activity of the contractors, they should use a professional contractor mortgages advisor. Who is a professional broker because they are familiar with the type of activity of contractors and can find lenders. Who offer them reasonable rates and conditions. The contractor’s mortgage broker compares the rates and terms of different lenders. And gives the contractors the best option based on the terms they provide.
With their vast knowledge and experience, AWS Mortgages specialist advisors help contractors get the mortgage they want in the desired periods. Our advisors are well aware of which lenders are best for contractors. They can identify lenders who are most likely to match the contractors’ conditions to help them get a mortgage. AWS Mortgages advisors will assist borrowers at every step.
