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Tips for First Time Buyer contractors
If you are beginning to think about buying a home, it is well worth getting organised in advance.
The first step is to look at your finances. Work out how much deposit you can realistically put down against a house, allowing for all the additional expenses – from legal costs and surveys to buying furniture and redecorating.
Make sure you have all the financial records you’ll need – bank statements, tax returns, recent contracts and company accounts.
Finally, take a look at your credit rating and find ways to improve it if necessary. Making sure you’re on the electoral roll is an easy way to improve your score.
How do I find the most appropriate mortgage?
It can be a little tricky for contractors to find a competitive mortgage, because lenders have varying attitudes towards self-employed people and contract workers.
All lenders want to be certain that you are able to meet remortgage payments comfortably. As a contractor, you could have gaps between jobs that might put pressure on your finances. To get a good mortgage offer, you will need to show the lender that your income is reliable.
There are a few ways lenders will assess your income in calculating a mortgage offer – and these often vary.
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We will work with you to understand your situation and needs, then develop personalised advice to help you achieve your goals.
How much will I be able to borrow?
The general rule of thumb is that lenders will give you around four times your income as a loan. For a traditional employee with a salary, this is very straightforward – but for a contractor it could mean that your loan amount depends on your business performance in the past year.
Some lenders will instead base their offer on your day rate and how many days a week you work, allowing for annual leave. It’s important to compare mortgage providers to find the offer that will work best for you.
How are contractors assessed by mortgage lenders?
So lenders assess contractors in different ways, and how contractors work can differ too.
Contractors working as a sole trader
If you’re a sole trader you’ll usually need to supply one to three years’ self-assessment forms, as these state your annual income. If your income varies a lot from year to year, they will take an average figure. In some cases, lenders will use your day rate as the basis for their calculations.
Fixed term contractors on PAYE
If you’re a fixed term contractor on a monthly salary, a lender will often approve you based on that income. You will usually have to prove that you’ve been contracting for at least six months and you have at least another six months left on your current contract.
Contractors who run their own Limited Company
If you run a Limited Company lenders will probably want to see one to three years’ certified financial accounts. Most will take your income as the stated salary plus dividends, but some will include the net profit in your business too.
Contractors working for an Umbrella Company
You might work for an umbrella company, in which case lenders will ask about your working history. It helps if you’ve had your contract renewed with the umbrella company.
Speak to An Expert
Expert Mortgage Advisers
We work with dozens of lenders
Access to competitive rates
We will work with you to understand your situation and needs, then develop personalised advice to help you achieve your goals.
How can I get the best rates?
As with any First Time Buyer, the bigger the deposit you put down, the better the lender’s offer. A 10% deposit is the average, but if you can reach 15% or even 20% lenders will offer you better interest rates.
Comparing lenders is another good way to make sure you’re getting the best deals. Look at both high street and specialist companies’ rates and fees. Make sure that the repayments on your mortgage will be affordable, as your home may be repossessed if you fall behind.
Can a Mortgage Broker help me get a Contractor Mortgage?
Mortgage Brokers are experienced professionals who specialise in mortgage advice. We’re here to take the stress out of securing a mortgage. There are a number of lenders who offer mortgage products for contractors, so we’ll explore your specific situation and find the most competitive deals on your behalf.
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