How to Get a Contractor Mortgage as Per Contract Rate

 

A contractor mortgage is like any other mortgage. But the underwriting process makes the difference between this mortgage and others. For example, a contractor mortgage based on a fixed-term contract can allow contractors to borrow significantly more than conventional mortgages. In contrast, conventional lenders limit small business owners' financing to a "salary plus dividend" formula.

But some lenders use contract rate underwriting, which is a better contractor method. These underwriters "annualize" the contractor's day rate using contract rate underwriting. Using this gross figure, lenders and contractor mortgages brokers determine how much a contractor can borrow. 

So if the lender is faced with anything other than the contractor's rate, it is unlikely that the contractor will get the mortgage amount they deserve. Here are the most important advantages of getting a contractor mortgage per contract rate and the ways to achieve it.

 The Advantages of Getting a Contractor Mortgage as Per the Contract Rate

1.      Mortgage amount

Many lenders now offer "contract-based underwriting," which calculates a better estimate of the mortgage amount than the gross contract rate method. This gives umbrella contractors and limited companies access to large mortgages. Today, contractors with good credit can borrow up to 5.5 times their gross annual contract rate.

2.      Best contractor mortgage rates for new companies

New to the contracting profession should not affect their ability to access contract-based mortgages. By using contract rates, contractor mortgage brokers can provide contractor mortgages even if they have just entered the contracting profession. 

3.      Expiration of contractors' current contracts 

If the potential to extend the contractors' current contracts is confirmed, the lenders will offer more suitable options to the contractors. Most lenders expect at least 8 weeks of a contractor's contracts to expire. But contractor mortgage brokers have relationships with lenders with more flexible terms, which opens up more opportunities for contractors.

4.      No need for a larger deposit

Some lenders offer competitive rates even with a 10% deposit. But these lenders are difficult to find and prefer to work with contractor mortgage brokers. But if the contractors can secure a larger deposit, the rate, and thus the contractor's repayments, will be lower. Contractors are less risky for lenders in this case by reducing the loan-to-value ratio.

5.      Ease in the process of proof of income

Many banks and building societies consider contractors to be high-risk applicants. For this reason, they demand three years accounts from contractors to prove their affordability. Meanwhile, accounts and tax returns do not show the real income potential of contractors. But contractor mortgage brokers can convince lenders that their affordability is evaluated based on contractors' annual contract rate. Also, a contractor mortgage broker will provide all the assistance needed to prove the contractor's income.

6.      Ease in getting contractor mortgages

Contractor mortgage approval takes time and many reviews and evaluates contractor applications. But some lenders are familiar with the nature of contractors' income and simplify this process for contractors. They also calculate the mortgage amount based on the contractor's rate. This saves time, energy, and the cost of getting a mortgage and speeds up the process significantly.

7.      Reducing the duration of getting a contractor mortgage

Reaching an agreement and mortgage proposal will likely take time for contractors. However, a contractor mortgage broker can issue the initial approval as soon as possible after getting the official request of the contractors and if they are qualified. Once an offer is accepted on a property, the mortgage begins quickly.

8.      Risk assessment of contractors

Lenders familiar with the nature of contractors' activities do not view contractors as high-risk customers. If contractors have a good credit rating and a deposit, they are classified as low-risk applicants and can borrow at a significant percentage of their contract rate.

9.      Contractors with credit risk

If contractors default on mortgage or credit card bills, more challenges will be ahead. But there is still a wide range of mortgages available that suit the needs of contractors. A contractor mortgage broker can help contractors find the right mortgage.

10.  Best contractor mortgage rates

Contractor mortgage rates are generally the same as permanent employees, and sometimes even contractor mortgage rates are lower. This is because contractors can pay a larger deposit due to their cash flow. This will reduce the rate and monthly payments of contractors. However, only a limited number of lenders consider these terms for contractors.

Conditions for Getting Contractor Mortgage as Per Contract Rate

Getting the best contractor mortgage rates has conditions mentioned in this section.

1.      The work history of the contractors should be relevant, and their field of activity should be low risk.

2.      The recent work history of the contractors shows no signs of unemployment.

3.      The daily contract rate of the contractors should cover their operational costs and be incremental.

4.      Contractors have formed their own limited company or work through a good umbrella company.

Use The Advice of a Specialist Contractor Mortgage Broker

The challenges going directly to lenders pose challenges for contractors. In this case, contractors may face lenders who do not understand the contractors' situation. The default of conventional lenders is to evaluate contractors' accounts for three years, and thus new contractors will face many challenges. Also, any unsuccessful credit application affects future contractors' credit history.

The advantage of using a specialist contractor mortgage broker London is that the brokers are familiar with the challenges of contractors' mortgages. Also, contractors can use the experience of brokers in large mortgages.

On the other hand, contractors who apply for a mortgage through a conventional lender must provide a copy of their contract and many documents to show their work history. In contrast, some lenders take a more flexible approach to contractors.

However, using the advice of a contractor mortgage broker can indicate which lenders are most suitable for contractors. Also, with this method, the application process may be faster and make it easier to find the best contractor mortgage rates.