As more people switch gears to the fast-paced, rewarding world of gig economy, the question arises - "How does a contractor qualify for a mortgage?" We've crafted a step-by-step guide to navigating this often complex terrain, making it accessible for the everyday gig worker. Let's break it down.
Are You A Contractor? Let's Define It! Mortgages for Self-Employed
If you're self-employed, working project-by-project, and don't enjoy traditional employee benefits, congratulations - you're a contractor! The IRS and mortgage lenders recognize you as such if you report income tax via self-assessment, receiving a 1099 instead of a W2.
Mortgage Eligibility for Contractors: What Lenders Seek
While contractors and traditional employees are judged by similar lending criteria, your path might be slightly more winding due to income fluctuations. However, with correct guidance, you can successfully tread this path.
Income Calculation: Contractor-Style
Lenders take two main routes to calculate your income - a) by the daily rate of your work, and b) your average earnings over a couple of years. This lets them assess how much mortgage you can comfortably handle.
Home Buying: A Greater Challenge for Contractors?
The freelancing world, while offering flexibility, brings along a varied income flow, making it a bit tricky to qualify for a loan. However, hurdles are not roadblocks. With the right preparation, you can comfortably acquire a mortgage.
Make Your Income Visible
To score a contractor mortgage, proof of consistent income over the past two years becomes crucial. This includes showcasing all income channels and legitimate tax write-offs.
Homework, Consistency, and Credit Scores
Gather paperwork, showcase professional expertise, and strive for a consistent work pattern, demonstrating financial discipline to lenders. Remember to keep your credit score in check - high scores lead to better mortgage deals.
Save for a Big Deposit
While not mandatory, a larger deposit decreases lender risk and can potentially get you lower interest rates. As a contractor, your higher earning rate and tax write-offs can help accumulate a significant deposit.
Joint Mortgages and Guarantors
If your partner is a traditional employee, a joint mortgage can help improve your approval chances. Similarly, a guarantor enhances application credibility.
Contractor-Friendly Lenders: Your Best Bet
Choosing a lender who understands and caters to the self employed / contractor lifestyle can be pivotal in your home buying journey. Self Employed / Contractor mortgage specialists are equipped to guide you through this process.
To conclude, yes, buying a home as a contractor might feel like a daunting task. But remember, with strategic planning, you can convert these challenges into opportunities. Need more help? The experts at NorthPort Funding are here to guide you in this exciting journey of homeownership. Let's make your dream home a reality!