News

Getting a home loan as a contractor can be a lot trickier than those with full time employment.


Generally, major lenders view contract workers as potentially risky borrowers, considering them unstable and a high risk in terms of loan repayments.

The good news is that banks do have loans for self-employed people and contractors – so long as you can demonstrate your income.

Here are some tips to consider before applying for a loan:

1. Have a strategy


have-a-strategyIt would be wise to consult a mortgage broker or a loans manager to create a plan for buying your property. This allows you to develop an approach based on expert advice (rather than guessing).

2. Pursue a ‘full document’ loan


pursue-a-full-document-loanSelf-employed people don’t necessarily need a ‘‘low documentation’’ loan. This type of loan carries higher interest rates because they are deemed as more risky by the lender. ‘Low doc’ simply means different forms of income verification are required (bank statements, financial statements etc.) as opposed to PAYG slips and tax returns. If you have tax returns, you should be pursuing a full documentation loan at standard rates.

3. Proof of income


proof-of-incomeShowing proof of income to afford the loan is just the start. After deducting all monthly expenses, you must be able to demonstrate that you have cash left over to service your loan (this is called ‘serviceability’).

4. Build on serviceability history


build-on-serviceability-historyDemonstrate at least a 6 month history of having an income large enough that you can afford to service the loan and still be able to take care of everyday expenses. Lenders will put this under a microscope, so it is important to establish a solid track record to increase your chances of loan approval.

5. Reduce your debt


reduce-your-debtThis one sounds like a no brainer, but you would be surprised at the amount of people who don’t factor in their consumer debt. Not many people realise that lenders count the limit on your credit cards as money owed, not the balance.

6. Keep your taxes up to date


keep-your-taxes-up-to-dateLenders will want to see your most recent income history. Importantly, make sure your tax assessments are paid as self-employed applicants usually have their tax portals checked for taxes outstanding.

Finally, be as transparent as possible with brokers and/or lenders. It is their job to verify that what you are saying is truthful and validate the documents you have provided. If you haven’t been honest, you could end up with a loan that you can’t service or no loan at all.