Securing Your Dream Home: A Guide to Getting a mortgage as an independent contractor

Are you an independent contractor looking to purchase your dream home? Getting a mortgage as a contractor is difficult, but it’s not unrealistic. This guide will help you understand the process of getting a mortgage as an independent contractor and provide tips on how to increase your chances of being approved. From understanding the different types of mortgages available to you to showcasing your income, we’ll cover everything you need to know to make your dream of homeownership a reality. Keep reading to learn more about how to get a contractor mortgage and make your dream of owning a home a reality.

The self-employed – including independent contractors and freelancers – are so styled because they run a business for themselves and accept full responsibility for its success or failure, according to government sources. It is work that commands flexibility and independence.

Their often-uncertain income, however – which might typically be seasonal or vary widely from one month to the next – means that they often find it more difficult than others to secure a mortgage.

But if you are self-employed, as an independent contractor or freelancer, don’t despair because there are mortgage providers out there who may be willing to lend to you. You simply need to find them.

Why may it be challenging to get an independent contractor mortgage?

The first thing to recognise is that mortgage lenders quite naturally want to make sure that you can comfortably afford any mortgage payment.

For a contractor, where your income may vary, it may be difficult to provide proof of a regular income.

Not unreasonably, that income is important to any lender since it’s one of the key measures of your ability to repay the mortgage. But, at the same time, it’s in the very nature of self-employment that you can’t be sure exactly how much you and your business will be earning each month.

You might need the help of an experienced mortgage broker who can present information about your income in a way that is most likely to win acceptance by any mortgage lender – who will also need evidence of your regular outgoings, such as rent, rates, and other overhead business expenses.

That help and advice may not only succeed in getting you a contractor mortgage but also avoid your application being rejected – a rejection that will adversely affect your credit rating and make it more difficult still to get a mortgage or other loan in the future.

Learn more about offset mortgages on our website.

What types of mortgages are available for independent contractors?

Self-employed mortgage:

This type of mortgage is specifically designed for independent contractors and self-employed individuals. It usually requires proof of income through tax returns or accounts and may have stricter lending criteria than other types of mortgages. You can read more about self-employed mortgages on our other blog.

Contractor mortgage:

Similar to a self-employed mortgage, this type of mortgage is designed for independent contractors who may have irregular income or gaps in employment.

Buy-to-let mortgage:

Independent contractors who are looking to invest in property may be able to apply for a buy-to-let mortgage. This type of mortgage allows individuals to purchase a property with the intention of renting it out for income. If you are a first-time buyer, you can read our article Buy to Let Mortgage for First-Time Buyers.

Standard mortgage:

Independent contractors may also be able to apply for a standard mortgage, although they may need to provide proof of income and may face stricter lending criteria than salaried individuals.

Guarantor mortgage:

Independent contractors who may not meet the criteria for a standard mortgage may be able to apply for a guarantor mortgage. This type of mortgage requires a guarantor, usually a family member, to co-sign the mortgage and provide additional security.

It’s important to note that as a contractor or limited company director, finding the right mortgage can be a bit more challenging than for salaried individuals. To ensure you find the best mortgage option for your unique situation, we highly recommend reaching out to a specialist mortgage broker. They will have a better understanding of the different mortgage options available to you and can guide you through the application process. So, don’t wait any longer; start the mortgage application process today by contacting a specialist mortgage broker.

Is it possible for independent contractors to secure a mortgage?

The good news is that, in most cases, you can! Independent contractors, freelancers, and the self-employed can draw on the expertise and experience of specialist contractor mortgage brokers – such as NeedingAdvice.co.uk – to secure a mortgage. Our mortgage advisors will help you to get the best mortgage deal from different lenders.

What is the maximum amount of mortgage that independent contractors can borrow?

Whether you are self-employed or in any regular employment, any lender is interested in one and the same thing – the affordability of the loan for which you have applied and your ability to repay it.

Whatever your employment status, the exercise is essentially the same – how much do you earn, how reliable or secure is that source of income, and what ongoing expenses are set against the income you earn?

As an independent contractor, you will typically be required to provide proof of your earnings for the last six months, although many lenders will prefer to see at least two to three years of audited accounts.

If you are new to your role as an independent contractor, or a freelancer, therefore, you might struggle to provide the required evidence of consistent and regular income.

Once again, however, do not despair. Evidence of earnings over the past six months might not meet the gold standard of two to three years of accounts – but it is better than nothing. If you are interested, you can contact a mortgage broker, who can access your application and able to tell you how much you can borrow.

If you are interested in sole trader mortgages, you can read our article.

How to Calculate the Maximum Loan Amount You Can Borrow in the UK?

Calculating the maximum mortgage amount you can borrow in the UK can be a bit complex, as it depends on a variety of factors, including your income, credit score, and debt-to-income ratio. However, there are a few key steps you can take to determine your maximum mortgage amount:

1. Determine your income: This includes your salary, bonuses, and any other sources of income. It’s important to note that as an independent contractor, your income may be more difficult to verify, so be prepared to provide documentation such as tax returns or accounts.
2. Calculate your debt-to-income ratio: Your debt-to-income ratio is the amount of debt you have compared to your income. Lenders will use this ratio to determine how much you can afford to repay each month.
3. Check your credit score: Your credit score is an important factor that lenders consider when determining the maximum mortgage amount you can borrow. A higher credit score will give you access to better rates and more favourable terms.
4. Use a mortgage calculator: There are many online mortgage calculators that can help you determine the maximum mortgage amount you can borrow. Simply enter your income, debt-to-income ratio, and credit score, and the calculator will give you an estimate of the maximum mortgage amount you can borrow.
5. Consult with a specialist mortgage broker or lender: They will be able to provide you with a more accurate assessment of your maximum mortgage amount and guide you through the application process.

It’s important to keep in mind that these are just estimates, and the actual amount you can borrow may vary based on your specific circumstances. It is always recommended to consult with a specialist mortgage broker or lender to get a more accurate assessment of your maximum mortgage amount.

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How mortgage affordability is assessed for a limited liability company

If you are trading as a limited liability company, you are likely to find that most mortgage lenders adopt different criteria – particularly concerning the income you declare in support of any application.

Many lenders, for example, make their assessment based only on the salary you take from the company and from any dividends you receive. Any other source of income might be discounted. So, if you are drawing a relatively low salary – to boost the profitability of your company – you might need to look a little more carefully for a mortgage lender that specialises in underwriting and is, therefore, prepared to consider the bigger picture illustrated by your full book of accounts.

In any event, if you are the owner of a limited liability company, you will need to distinguish between company funds and those held by you personally. Monies that have been put aside to meet corporation tax, income tax, or VAT liabilities will not usually count as part of your personal assets.

You can also read about self-employed mortgages on our website blog.

Is it possible for independent contractors paid on a day-rate basis to secure a mortgage?

One of the freedoms of a contractor is the ability to fix your rate of pay. You might set:

• a fixed rate for completing a particular work project; or
• an hourly rate – based on each hour worked; or
• a daily rate – this is probably the most common arrangement and has advantages for both the contractor and the client.

Whatever your chosen pay arrangements, it is possible to secure a mortgage, provided you can furnish sufficient evidence – by way of payslips, receipts, and the like – of your average gross annual income.

If you submit evidence of day-rate earnings, some lenders might simply take that figure and multiply it by the number of days a week you typically work.

Making allowances for time off, holidays, and gaps between contracts, the lender can multiply the computed weekly rate to arrive at an estimated annual income – typically on the assumption that you will have worked between 46 and 48 weeks in any one year.

Read about self-employed mortgages on our blog.

Next steps – Mortgages to contractors

If you are a contractor or engaged in freelance work, you might find it challenging to secure a mortgage. But it is by no means impossible. There are lenders more than willing to advance such a loan – but you need to know where to look.

Here at NeedingAdvice.co.uk, we are always happy to help you in that search, guide you in the direction of likely lenders, and help in securing the mortgage you need.

FAQs- Mortgage for Independent Contractors

Is it possible for me to obtain a mortgage as an independent contractor?

Yes, you can get a mortgage as an independent contractor. It’s just a bit tricky because there are so many factors involved when it comes to getting a mortgage. The first thing you should do is to contact a specialist contractor mortgage broker for specialist advice before starting your mortgage application.

What is the maximum limit for mortgage borrowing for independent contractors?

The amount of mortgage you can borrow as an independent contractor varies from lender to lender. Some contractor mortgage lenders will accept your mortgage application without taking much time, but some mainstream lenders will not provide you with a mortgage. It is always better to contact a specialist contractor mortgage broker before starting your application.

What is the process of assessing an independent contractor’s income for a mortgage?

A mortgage lender is not likely to use your previous years’ income when calculating your ability to pay back a loan. Instead, they may be looking at your current income. Your income may be lower than expected because of a change in your circumstances (for instance, you’ve moved house). If you’re planning to move home, make sure you tell your mortgage broker about this. They’ll then be able to advise you on how best to approach your new mortgage application.

If you are interested in knowing about the mortgage on commission income, you can read our blog.

What is a contract rate and how can a contractor use it to get a loan?

A contract rate is a rate agreed upon by both parties for a particular job. This could include hourly rates, daily rates, monthly rates, or even yearly rates. You would normally agree to these terms prior to beginning the project. However, if you are applying for a mortgage using a contract rate, you must ensure that you have been paid all outstanding invoices.

You can also apply for a mortgage based on your actual earnings. In order to calculate your actual earnings, you need to deduct out expenses that are associated with running a business. These include things like rent, taxes, insurance, utilities, marketing costs etc.

Read about Cis Contractor mortgage on our blog section of knowledge mortgages.

What are examples of professional contractor mortgages?

Some examples of professional contractors are IT Contractors, Accountancy Professionals etc.

All the types of mortgages available for contractors are as follows:

1) Self-employed mortgage – A self-employed mortgage is one that is offered to people who are self-employed. The interest rates and repayment periods vary depending on the type of mortgage.

2) Mortgage for professionals – This type of mortgage is designed specifically for those working in the profession of accountancy, law, engineering, medicine etc.

3) Contractor mortgage for IT professionals – This type of contractor mortgage is designed specifically for IT professionals.

4) Mortgage for freelancers – This type of contractor is designed specifically for freelancers.

5) Mortgage for construction workers – This type of contractor provides loans to people who work in the field of construction.

6) Mortgage for plumbers – This type of contractor offers loans to people who work as plumbers.

7) Mortgage for electricians – This type of contractor lends money to individuals who work as electricians.

8) Mortgage for engineers – This type of contractor helps people who work as engineers.

9) Mortgage for architects – This type of contractor gives loans to people who work for architects.

10) Mortgage for interior designers – This type of contractor allows people who work as interior designers to borrow money.

Is it possible to secure a contractor mortgage with a low credit rating?

Yes, you can get a contractor mortgage with an adverse credit score, but you may need to contact contractor mortgage advisors for specialist advice. Most mainstream lenders won’t approve your application if you have a bad credit score. But there are some companies which specialize in providing loans to people with poor credit. They will help you improve your credit history report before they lend you money. You can check your credit reports with the below link.

Check your credit rating today.

Can I get a mortgage for contractors as a sole trader with a bad credit report?

Yes, you can get a mortgage for the contractor as a sole trader with a poor credit record. If you have a poor credit record and want to apply for a professional contractor mortgage, you will need to contact specialist advice.

The key to getting a mortgage as a contractor or freelancer is to be prepared. You will need to provide evidence of your income, such as tax returns and bank statements so that the lender can assess your ability to repay the loan. It is also important to demonstrate that you have a steady stream of income and that it is likely to continue in the future.