Applying for a mortgage for your first home can be overwhelming, and for some, a daunting process. With the vast number of mortgage products on the market and variety of different lenders, it can be a difficult task knowing where to start.
If you are a contractor and first-time-buyer, there are additional factors to consider when applying for a mortgage. Not all mortgage lenders offer the same lending to those not in full-time employment and lenders often have significantly different criteria they use to assess a contractor mortgage application or self-employed applicants.
However, with the right planning and guidance, applying for a first-time contractor mortgage needn't be any more difficult than any other homebuyers mortgage application.
Listed below are some helpful tips on how to apply for a first-time buyer mortgage for contractors:
How to find the right mortgage
Over recent years, there has been an increase in the proportion of the UK workforce moving into contract work or self-employment and more lenders are now starting to offer contractor mortgages.
Many of these lenders have adjusted their criteria for lending to reflect the nature of contractor employment and income. However, it is still often the case that more specialist lenders tend to be more flexible offering mortgages to contractors in comparison to some of the more mainstream, high street lenders.
At contractor Mortgages Direct, we specialise in helping contractors find the right lender and mortgage that best suits your circumstances — contact us to find out how we can help you.
Why using a specialist broker can help with contractor mortgages
Contractor mortgage brokers have proven experience in securing mortgages for contractors. Mortgage brokers often deal with a plethora of contractors which means they better understand your needs and therefore are better suited to offer you better products and services.
Along with the experience comes knowledge; contractor mortgage brokers have specialist knowledge and therefore are able to advise on how best to apply for a first-time mortgage and guidance on issues that can arise, such as gaps in employment, adverse credit and consolidation of debt.
How much can a contractor borrow on their mortgage?
When applying for a first-time mortgage, the mortgage provider will conduct an affordability assessment, which determines how much the lender is willing to lend.
The affordability assessment generally includes looking at how much you earn, your experience and how secure your income is. Please make sure to use our "How much you can borrow" calculator to give you an understanding of affordability.
Documents needed for a first-time buyer contractor mortgage
As a general rule of thumb, the majority of lenders will require similar documentation during the application process, however, different lenders may use different criteria to assess the affordability depending on the way you work and how you pay yourself, whether you’re a contractor, self-employed or operate as a limited company.
Depending on the lender, they will typically ask for one or more of the following documents;
- Latest signed contract alongside Terms and Conditions of the contract
- Personal Bank statements showing income (minimum of three months worth);
- Latest 3 months business bank statements showing contractual income credits
- Latest 3 months payslips if contracting via Umbrella
- Personal and address verification (passport, utility bills or other photo ID).
The importance of good credit history
Assessing the homebuyers creditworthiness forms part of the mortgage application, and this consists of two elements:
- Credit scoring — credit scoring is applied to the information given on the applicant such as age, job type, length of time at a current address, etc.
- Credit check — a credit check is performed with external credit reference agencies.
The three main UK credit reference agencies are Equifax, Experian and CreditKarma. All three agencies record details of all credit arrangements the applicant has had, along with details of missed payments, arrears and more serious credit issues such as County Court Judgements (CCJs) and bankruptcy.
Before completing your mortgage application, it’s usually a good idea to get a copy of your credit report, so, you can check in advance for any issues or adverse records that may affect your application.