In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Contractor and home loans
Yes you can still get a home loan as a contractor. Mortgage Experts has been helping contractor’s secure home loans for many years.
As long as your employer or agency takes care of your tax and super obligations for you and you have a track record in your industry we should be able to get you a loan without jumping through too many hoops. If you fall into this group we refer to you as a PAYG contractor.
Some lenders will still be reluctant to offer home loans to contractors without 2 years tax returns but many lenders are ok with this form of employment which is now very common in the IT, engineering and medical fields.
How is PAYG contractor income assessed?
There are two types of PAYG contractors, those that get holiday and sick pay and those that don’t. If you get sick and holiday pay there isn’t a great deal of difference between being a contractor or a permanent employee in terms of how your income is assessed. If you do not get paid leave we would normally take a figure as per below to allow for some time off.
Contracts states 40 hours per week @ $100 / hour including super. Contract has another 2 years to run. No holiday pay or sick pay. Not advised how much leave is allowed. In this example we would assess annual income as:
$100 (per hour) / 1.0925 (deduct super at statutory amount; 9.25% at time of writing) x 40 (hours a week) x 44 (weeks per year allowing 4 weeks personal leave and 2 weeks sick leave ) =$161,098 pa income.
Length of time contract has to run
If your contract has less than 6 months to run your previous history in contracting becomes the main thing lenders will be assessing you on. If this is your first contract and your current contract is about to expire many lenders would be reluctant to lend to you as compared to if you had many years experience contracting.
If you do have a contract that is about to expire and you are in an otherwise strong position it should not be impossible to secure a loan for you. Case by case as they say and there are definitely differences between how lenders see things which is where we can help.
Self Employed Contractors
If you are a contractor with your own ABN who invoices just one “employer” for your personal services each month and you have no other business expenses or business risks you can sometimes be treated the same way as a PAYG contractor when it comes to securing a loan.
This applies with only one lender that we know of. Most lenders would treat you as being self employed which means you would need to provide full financials for 2 years to secure a loan.
Example of a self employed contractor that could be acceptable with limited income history:
- Professional type personal service provided such as IT, Engineering, Medical etc.
- One “employer” that you invoice on a regular basis.
- Written agreement between you and the employer that outlines pay and conditions.
- 3 months or more bank statements showing regular bank deposits for similar amounts.
- No capital outlay or business expenses required to perform your duties.
- No business risks taken.
Contracting is an increasingly common form of employment in our economy today. Some lenders are still a little apprehensive when it comes to finance for contractors but generally if the contract is PAYG you should be able to secure a home loan without too much trouble. If the contractor is invoicing the employer it gets a bit trickier but it is not impossible. It all comes down to knowing which lenders to approach. That’s where Mortgage Experts can help.