The thought of trying to find a mortgage as a contractor can be daunting. Lenders can sometim.es shy away from the self-employed due to the somewhat complexity of proving your income as opposed to a PAYE employed borrower.
There is no need to let your chosen profession stop you from getting into the property that has caught your eye or the mortgage that you hope to borrow. Even though there is no such thing as a contractor mortgage there are more lenders catering towards contractors and accepting them onto mortgages.
If you are buying for the first time as a contractor, to make yourself even more attractive to lenders, here are a few tips to boost the chances of being able to buy your home:
Make sure that you close any unused credit cards or accounts that are still active in your name. Pay off any debts that you may owe as this will boost your credit score too. You should try to avoid your overdraft and avoid payday loans. Make sure that you keep up with your monthly payments to prove that you can borrow adequately.
Having no credit is just as bad as having bad credit, it is important to build up some credit to prove to a lender that you can borrow money and give it back. You can take out a credit card and make sure that you are paying it back by setting a limit on your spending and making sure you have the capital there before you spend.
It can be easy to slip into your overdraft when things are getting tight with money – it is however a short fix which can be detrimental to your credit file. You need to ensure that you are keeping your bank accounts in order. You should cancel direct debits that you no longer need to have some more capital too.
You should register yourself on the electoral register as soon as you can to boost your credit. Especially if you have moved as you will be tied to accounts and properties you no longer have anything to do with. It is important to keep everyone up to date with where you are too and this is a good way to do so.
The bigger your deposit the better – lenders love it when you have the money upfront to show them you are eager, and you sometimes get discounted interest rates by doing so. You need to make sure that you have at least a 5% deposit ready as a first-time buyer. There are also Government schemes that you can access where they will give you 20% of the property’s value when you have the 5% ready too.
Make sure you have planned and budgeted all of the expenses you may incur and you know what the plan is when it comes to moving day. It is important to plan for things even if they may not occur. If you have budgeted for all of your expenses you will be more prepared when it comes to applying for your mortgage.
You need to have a plan when it comes to moving to make sure that it goes smoothly. Moving is a stressful process and if you plan carefully enough you can make it an easier and calmer process for yourself.
You will need to make sure you have your Agreement in Principle ready with your mortgage application. An Agreement in Principle is a lender giving you an estimated amount of what you may be able to borrow following a soft credit check. Do keep in mind that too many of these checks can affect your credit.
Ensure that you seek the help of a qualified accountant to help you with your tax documentation. You can also seek advice on how to budget and prepare for your mortgage. You should also choose a good solicitor to be able to take care of all of the legal documentations.
If you are a contractor working underneath your own Limited Company, then a lender will take into account the director’s salary and any dividends. If you are a fixed term contractor who is a PAYE employee, then you will be assessed on your income.
You should ensure to get the last three years of accounts together for your lender, they will want to see your income and that you have paid your taxes properly. If you cannot provide three years, there are specialist lenders out there for you and some will accept a years of accounts too.
You will need to have your documents at the ready when you are applying for a mortgage to make it a speedy process and to look attractive to the lender.
Make sure you have prepared:
Three years or at least a years worth of accounts with SA302’s forms
Please ensure to check your lenders criteria as some lenders will vary in what documentation they will ask for.
The amount that you will be able to borrow will be dependent on your own financial circumstances. Typically you will be able to borrow 5x your annual salary, but this is dependent upon your credit and your income.
It will depend on how you receive your income too, for instance if you are on a day rate the lender will take your day rate and work out your estimated annual salary.
You will need at least a 5% deposit as a first-time buyer. You can access government schemes too to help you onto the mortgage market such as Help to Buy. The bigger the deposit that you can provide the better though.
You can seek the help of a mortgage broker to help find the right mortgage to fit your needs. Mortgage brokers have access to whole market mortgage lenders and have built relationships with them too and can sometimes offer exclusive rates and deals. Brokers are authorised and regulated by the financial conduct authority meaning they are qualified to help guide you on the property ladder.
A mortgage broker will take all of your needs into account and then pick out the right options for you. As a first-time buyer, if you are not sure on where to begin then it is important to seek expert advice. A broker will compare mortgage products and give mortgage advice tailored completely to you.
A broker will help with your mortgage application and give you one on one tailored advice and guidance. It is worth getting in touch with one before you make the big financial commitment of monthly repayments on your mortgage.