The Steps in Getting a Home Loan on Contractor Income
How great is it to be your own boss, working whatever you like, for whoever you choose? And yet, everything comes with its own risks and downfalls. You might feel this a little too intense if you're an independent contractor and have been trying to get a home loan. You've realized how difficult that is and that for the lenders, you're a high-risk individual that they're not willing to bet their money on.
That might seem unfair to you, especially when you know you can pay the entire loan back in due time… but they don't! And that is the missing element in the communication that we'll walk you through on how to prove it to them.
Here are some pointers you ought to read on acquiring a mortgage as a private contractor.
How to Get a Mortgage on Contractor Income
Planning is key to every little or huge success. Understanding how to get a home loan starts with understanding what the banks need to see in you before they can lend you money. You need to give them proof that you're responsible when it comes to managing your money, and that you have a stable income that won't make paying your loan back troublesome for them. To do that, you should prepare yourself first.
Preparing for the Home Loan
- Income & Stability
Knowing which kind of independent contractor you are will help you forecast how the bank will deal with you. After all, a Pay-As-You-Go contractor gets paid in different ways than a self-employed one, and thereby treated differently. Whichever type of contractor you are, you need to have a stable income over a period of time.
It wouldn't look too good to go ask for a loan when you still have an unpaid debt. Being debt-free is a very positive sign that you're responsible when it comes to money, and it's a good indicator you'll be able to pay back the loan.
Having a cash reserve is of more assurance to the bank, which will ease their fears about an unstable income. You can save this money in a separate account in liquid form.
Reduce Tax deductions
We always try to run away from any taxes when we could, but your tax returns will serve as proof of your consistent income and your financial state.
The Steps in Getting a Home Loan
Now that you've prepared yourself, it's time to go through the steps of getting a home loan.
- The Documents
The documents are the most important proof you need to provide. The documents will vary according to your type of contract, but mainly you'll need the following:
- Tax returns or most recent payslips
- Bank statements and invoices of the last three months at least
- Clients Receipts
- Employment contract, or an employment contract from your main employer
- Tax portals
- Your Earnings Vs. How Much You Can Borrow
You also need to be realistically aware of your average income during a certain period of time. Based on that, you can get an estimate of how much you can borrow. Afterwards, you need to create a repayment plan to repay all of your loan in the designated period of time. This will help in choosing the loan that works best for you.
Choosing the Right Loan Features
Choosing the right loan is more than just checking the interest rates and going for the lowest. You need to understand the full package of the loan: whether you'll be able to make extra repayments in the designated timeline without any penalties, will you be able to create an offset account, is the interest rate fixed or variable and how does that affect the repayment, will you be able to take a holiday, and whether you can redraw any extra repayment you made. There are of features you need to be aware of to make the right choice.
When it comes to home loans, you might be a little scared of how difficult it is. But you don't need to be, you just need to understand how it works so you can play it right. An experienced mortgage broker will offer you these insights you need while walking you through every step of the way to make sure there's nothing missing that could go wrong. From getting your documents ready to choosing the features of the loan and getting your loan approved, your broker will help you through all of it.