First-Time Buyer Contractor Mortgage
It can be a somewhat daunting time when it comes to preparing to buy your first home. It is no secret that there is more effort involved when it comes to assessing a contractors income. This shouldn’t stop you from applying for that mortgage and getting closer to securing your dream home
There are a few things you can do to try and improve your chances of hearing “yes”:
- Keep your credit file clean
- Register yourself on the Electoral Register
- Keep your bank accounts in order
- Get your deposit ready
- Budget all expenses
- Speak to your accountant about SA302’s and tax overviews
- Have a decision in principle or agreement in principle to hand
- Select a trusted solicitor
- Plan your survey
- Plan your move
How do I find the most Appropriate Mortgage?
The most appropriate mortgage will depend upon your own financial circumstances. The best way to find the right mortgage for you is to speak to a mortgage adviser. An independent mortgage market adviser can find mortgage deals that banks cannot offer.
Mortgage Advisers have experience in all types of different clients, from first time buyers to Buy to Let investors, many of them also Self-Employed or contractors too. You may not be able to go into a mortgage alone and might opt for a shared ownership or guarantor mortgage; we know mortgages and will be able to find a mortgage that suits your needs.
There are a lot of different interest rates and mortgage products out there and it is so important you understand what you are committing to.
How will a Contractor be Assessed?
If you work underneath your own Limited Company, then a lender will take into account your salary and any dividends. If you are a fixed-term contractor who is a PAYE employee, then you will be assessed on your income.
You should be prepared to show the lenders up to three years’ worth of accounts to prove that you have paid your taxes properly and that you have a reliable income to afford a mortgage. There are lenders out there who will accept less than three years’ worth of accounts, but you will have to hunt for them.
Day Rate Assessment
Lenders will take your day rate and multiply it by the number of days you work per week and then multiply that out to get an annual estimate of your income.
This can be a good approach if you do not have an established amount of contracts or have recently left full-time employment.
If you operate under your own limited company then you will be asked to provide the director’s salary and any company dividends. It is worth mentioning not all lenders will take into account dividends and it is important to understand a lender’s criteria for assessing income.
If you need to submit self-assessment forms and SA302 forms, then you may have to do it with a chartered accountant or even the lender’s chosen accountant. You need to be prepared to provide at least two years’ worth of accounts.
Fixed Term Contractors
If you are a fixed-term contractor who is a PAYE employee then lenders shouldn’t have a problem looking into your income history. You will need to be under this same payroll for a given amount of time depending on lenders.
What Documentation will I need?
You need to make sure you come prepared with your documentation when you are applying for a mortgage to make it as speedy as possible.
Make sure that you have the following prepared:
- Three years or at least a years’ worth of accounts with SA302’s forms
- Any contracts or agreements
- Signed business accounts
- Proof of address.
Lenders will have different criteria that you will have to fit so it is important to check what the lender requires from you before approaching them.
What deposit will I need?
As a First Time Buyer you will need at least a 5% deposit. You can access government schemes such as Help to Buy in which when you provide 5% of the property’s value as a deposit, the government will give you another 20% to put towards it.
As a contractor sometimes income can be uncertain or not regular, therefore the bigger the deposit that you can provide the better. Lenders will be more willing to accept you onto a mortgage if you have more revenue upfront.
How much will I be able to borrow?
The amount that you can borrow will depend upon your own financial situation. It depends on your current income and your credit history. If you are reflecting a good credit score then you will be able to access up to five times your annual salary.
It could be worth using a mortgage calculator to give a rough guide on how much you may be able to borrow. It is important to ensure you can afford the type of mortgage you are applying for as if you miss monthly payments during your mortgage term then you can end up with the property being repossessed.