Can independent contractors get a mortgage easily in 2022? image

Can independent contractors get a mortgage easily in 2022?

For many people who aspire to own their own home, taking out a mortgage is a much more realistic prospect than purchasing a property outright. However, taking out a mortgage requires borrowers to satisfy the criteria lenders set.

Every lender is different and will have its own requirements, but they tend to be broadly similar. The precise criteria will usually depend on the borrower's employment status and the type of employment they're in. With the gig economy continuing to grow and self-employment becoming the norm for workers in many sectors, lots of people are asking, 'Can independent contractors get a mortgage as easily as those in regular employment?'

Independent contractors can still take out a mortgage to help them spread to cost of a property over a long period of time. In fact, contractor mortgages exist specifically for contract workers. However, because most contractors' earnings will fluctuate from month to month, the criteria lenders use to assess what they can afford will usually differ from those used for borrowers in regular full-time employment.

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How much can independent contractors borrow on their mortgage?

When a borrower applies for a mortgage, the lender will begin by conducting an affordability assessment. This assessment will tell them how much the lender earns, how much they spend every month on living expenses, and how secure their income and earnings are.

For borrowers in regular full-time employment, establishing their affordability is straightforward because they will receive a stable income every month. However, calculating affordability for self-employed workers and independent contractors is more complicated because their earnings will usually vary from month to month. Lenders will therefore look at an applicant's earnings history over at least six to twelve months, although some will go back as far as two or three years.

Applying for a mortgage as a contractor is a little bit more complicated than applying as a regular worker with a salaried position, but the process is essentially the same. Lenders want to know how much applicants can afford to repay.

You can use our free mortgage calculator for contractors to calculate your borrowing power based on how much you earn as an independent contractor. Our calculators aim to give you an estimate, but to find out exactly what your mortgage options are as an independent contractor, you will need to contact us. You can call us, email us, or chat with us online for free advice.

Can independent contractors get a mortgage if they have only recently left regular employment?

Independent contractors who have only been working as a contractor for a short amount of time can still obtain a mortgage. In these cases, lenders will usually look at their earnings over previous years to derive an average income. They will use this figure to determine what you can afford to repay each month.

However, lenders are unlikely to use this approach if the amount you earn has fluctuated significantly from year to year. In these cases, they will usually either use the most recent year or the year for which your earnings were lowest. If you have several years of earning at a fairly consistent rate and then one or two recent months of earning significantly more as an independent contractor, lenders will usually ignore the most recent months and work with the lower figure.

How can contractors strengthen their mortgage applications?

The outcome of the affordability assessment will tell a lender how much a borrower can afford to repay each month, and therefore determine how much they can borrow on their mortgage. Contractors who have been self-employed for a long time will often be able to borrow a higher amount because there will be more certainty about their earnings potential. However, this isn't a hard and fast rule; a contractor that has only recently made the switch from full-time employment may still be eligible to borrow more based on their earnings over the preceding years before they began contracting. There are a couple of things contractors can do to strengthen their mortgage applications and improve their chances of being accepted by a lender.

The easiest way of strengthening a mortgage application is to offer a larger deposit upfront, meaning the total amount you borrow is smaller. Because you aren't borrowing as much, the lender's risk is reduced, which makes your application a more attractive prospect.

Anything you can do to demonstrate long-term financial security will also strengthen your application. For example, if you have any agreements or contracts in place that guarantee you ongoing income over an extended period of time, these will make you a less risky prospect in the eyes of a lender. Similarly, try to minimise the amount of time you take off in the lead-up to filing a mortgage application. If lenders see regular breaks in your earnings records, they might doubt your ability to reliably generate a regular income from contracting work.

When submitting any kind of application to borrow money, it's always worth checking your credit score beforehand; mortgage applications are no exception. Obtaining a copy of your credit report will show you your current credit score and highlight any outstanding debts or other issues that might affect your mortgage application. Once you know what these are, you can take steps to address them and repay any money you owe. Contractors will benefit from improving their credit score more than other mortgage applicants because lenders will be looking harder for evidence of good financial management than they would for applicants whose income is regular and guaranteed.

So, can independent contractors get a mortgage? The short answer is yes. Of course, you will need to meet the lender's criteria, just like anyone else. The criteria for borrowing as an independent contractor are arguably stricter than they are for salaried workers. However, as long as contractors can demonstrate a reasonable degree of financial security, most lenders will still be willing to offer them good mortgage terms.

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As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.

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