How To Get a Mortgage as a Contractor or Freelancer
Being self-employed and working as a contractor or freelancer has its perks. You can work around your schedule, be your own boss, and do it all whilst still in your pyjamas (no judgment here)! But there can be downsides too. One of which includes getting a mortgage.
Contractor’s and freelancer's incomes can vary month to month, meaning it can be difficult to prove how much you take home annually. Therefore, some lenders won’t be willing to risk offering a mortgage to buyers in this scenario. However, with the self-employed workforce increasing, there are plenty of specialist lenders out there who are happy to take on this type of mortgage application. There are also things you can do as a contractor or freelancer to better your chances of getting accepted.
This article will run through ways in which contractors and freelancers can boost their chances of getting accepted for a mortgage, making that dream of owning a home a reachable reality.
At Mortgages Online, we have access to hundreds of lenders who offer a range of great mortgage offers. Our team is expertly trained to work with all kinds of mortgage applications, so whether you need advice or you’d like our help in finding the perfect mortgage for your financial situation, don’t hesitate to get in touch. Start now with our mortgage calculator or speak to a team member by calling 03300 58 60 58.
Can You Get a Mortgage When Self-Employed?
For those who are self-employed, like contractors and freelancers, it is most definitely possible to secure a mortgage. You can also get a great deal too, but the process might be a bit more difficult than for those in full-time employment.
Although those who are self-employed can easily make more money than full-time employees, lenders can be worried about your income fluctuating. Therefore, as your income is not 100% guaranteed, you will be treated with more caution. This may seem unfair, but it’s all about being able to prove you can be trusted financially to make your monthly payments.
This is why applying for a mortgage for contractors and the self-employed is a little bit more difficult, but still very possible. The strength of your mortgage application is what will help you get that great deal.
What Is a Contractor Mortgage?
A contractor mortgage is a mortgage based on your contract rate instead of your accounts. Many high street lenders will find it hard to work out your income using only your accounts, so this type of mortgage helps provide a better outline of your finances - meaning you can get a better mortgage deal.
Speak To a Specialist Mortgage Broker
Freelance and contractor-friendly lenders are out there, and you can find specialist brokers who have access to them. Using a mortgage broker who has dealt with self-employed mortgages before will give you more chance of getting accepted. This is because they already have experience and knowledge of this type of application, so can provide professional mortgage advice that will help with your application. They will also have access to lenders who are happy to accept applications from contractors and freelancers.
How To Increase Your Chances
As with any mortgage, there are certain things you can do as a buyer to make your application more attractive to lenders. Specifically, for those with special circumstances, such as being self-employed, you should consider doing the following:
- Have as much financial evidence as possible.
When putting your application together, the lender will want to see that you can afford monthly repayments. This is when they will look at your financial history, so make sure to include all of your recent contracts. Try not to leave gaps between jobs and contracts where possible, as lenders will want to see you have a consistent income. It is possible to have only been self-employed for six months and apply for a mortgage, although one year plus is deemed more desirable.
- Save for as large a deposit as possible.
For contractors and freelancers, the larger the deposit you have the better your application will look. You should aim to save for at least a 10% deposit. The larger the deposit you have, the cheaper the rates will be.
However, if you don’t have enough for a 10% deposit you can use schemes like Help to Buy to get a 5% deposit. Speak with a specialist mortgage broker to see if you are eligible for this.
- Don’t miss anything out.
To give your application a good chance, make sure you don’t miss any of the important documents your broker instructs you to include. This will usually include bank statements, invoices, proof of your day rate and SA302 tax calculations. Leaving documents out will only prolong the process, so take your time and make sure all details are correct.
How Much Can You Borrow As a Contractor/Freelancer?
If you’ve been working as a contractor or freelance for a couple of years, lenders will usually work out how much you can borrow by averaging your annual income.
The way in which they can work this out is by using your contracted day rate and multiplying it with the amount of days you work a week to give your average weekly income. This weekly income is multiplied by 46 or 48 to give an annual income figure. This annual income can then be multiplied by 3, 4 or 5 to work out your maximum mortgage.
Lenders can have different ways of calculating how much you will be able to borrow and this can depend on the stability of your previous earnings and how long you have been working.
Buy Your Dream Home
It is completely possible for contractors, freelancers and the self-employed to buy their dream home with a great mortgage deal. The modern workforce is shifting, meaning professional mortgage advisors, like us, are becoming used to helping those in special financial circumstances. Getting professional mortgage advice can be the difference between getting accepted and rejected for a mortgage, so make sure to get in touch with us and we would be more than happy to help you.