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Home loans for contractors: can you get a loan without a permanent job?
If you can’t tick the ‘permanent employee’ box on your home loan application, will a lender still consider you?
11 July 2024
If you can’t tick the ‘permanent employee’ box on your home loan application, will a lender still consider you?
When you go knocking on a lender’s door looking for a home loan, how much you earn is one of the most important pieces of information you’re typically asked for. But how you earn that income can also be a crucial part of a borrower’s application. This can sometimes make getting a home loan as a contracted employee complicated.
Can you get a home loan as a contractor?
Generally speaking, it’s possible for people who are employed on a contract basis to be approved for a home loan, but it will ultimately depend on your circumstances and the lender’s policies. For example, lenders might only lend to contractors who work in certain industries that are seen as more reliable or where there is a skilled worker shortage like in IT.
The type of contract you work under could also play a part. For example, lenders may distinguish between self-employed contractors (sometimes called independent contractors or subcontractors) who work for themselves and whose income could be less stable, and PAYG (pay-as-you-go) contractors who work for an employer for a set rate of pay, but on a non-permanent contract basis. You could also be employed on a set term contract with an employer that has an agreed upon end date.
Other factors that might help determine whether a bank or other financial institution will give you a home loan as a contractor could include:
- Your income and what contracts you currently have in place and look to have in the future.
- Your borrowing history and credit score.
- Your existing debt (and how it relates to your debt to income ratio) as well as other financial commitments.
- Whether you have dependents to support, such as children.
- Your living expenses, sometimes referred to as Household Expenditure Measure (HEM).
- How much you are looking to borrow.
- How much of a deposit you have saved up and, as a result, what your loan-to-value ratio is.
- The purpose of the loan – whether it’s for a home to live in or an investment property.
- Whether you are applying as a single person or with other applicants.
How can I apply for a home loan as a contractor?
If you’re a contractor and in a position to apply for a home loan, here are five steps to take which may prove helpful:
1. Research a variety of lenders
It could be worth checking the policies of a variety of lenders to find those that offer getting a home loan as a contractor. Doing this could also help you find the lenders offering the best terms on a loan, including the interest rate, fees and features that are included.
2. Decide on the type of loan that suits your situation
Would you prefer a variable interest rate loan, or a fixed rate loan? A fixed rate home loan would provide more budgeting certainty. But it could also be potentially less flexible, for example you secure a lucrative contract and want to make extra repayments. Offset accounts can add flexibility to how and when you can make repayments.
Another option is a low-doc or ‘non-conforming’ home loan, which is a type of product designed for borrowers who can’t provide all the documentation typically required as part of the home loan application process. This is not necessarily an easier option, as you may still be required to show your bank statements and other evidence to support the application.
3. Work out how much you should borrow
It may help to calculate how much you can afford to borrow based on your deposit amount, income, expenses and other factors. This could be particularly helpful when it comes to deciding which areas to go hunting for a home, what kind of property you can afford and your ability to repay your mortgage as a contractor.
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→ Related: Affordable housing option: How much do tiny houses cost in Australia?
4. Consider a financial spring clean
An important thing to consider is to remove any unnecessary credit limits or loans. This means credit cards, outstanding loans and buy now pay later services. It may be worth also checking your credit score, as lenders and other financial institutions often use it as a factor when reviewing loan applications. Canstar offers free credit score checks online or via the Canstar App.
It can also help to closely scrutinise your expenses in the period leading up to your application, as lenders are likely to request recent bank statements when deciding whether to lend to you. Creating a budget can also give you an idea of how your finances may look to a potential lender. Canstar covers budgeting and other tips to save money, as well as provides budgeting tools such as the budget planner calculator, as well as budgeting features on the Canstar App.
5. Gather together the documents you need for your application
This step can be particularly important for contractors. Lenders may ask for a wide range of documents and evidence, including:
- Work contracts.
- Bank statements.
- Business Activity Statements (BAS) (if you are a business registered for GST).
- ATO printouts (confirming you’re up to date with tax returns etc.).
This is done so that lenders can validate your sources of income and ensure that you’re complying with business standards.
Is it more expensive to get a home loan as a contractor?
Not necessarily, although you may have fewer lenders to choose from. This might rule out some of the providers offering competitive rates and fees. When working out the cost of a loan, it’s important to consider the interest rate plus the fees charged. The loan’s comparison rate is designed to help with that. It can also be worth factoring in the loan features you get as a borrower in return. Canstar’s Home Loan Star Ratings assess a wide selection of loans based on both the price and the features.
Can contractors take advantage of grants, government support and other incentives?
Generally speaking, how you earn your income is not one of the criteria for state or federal government support, whereas how much you earn may be. Here’s a selection of state and federal government support and incentives which contractors could consider pursuing, depending on their situation:
- State-based first home owner grants
- Federal first home loan deposit scheme
- Family home guarantee scheme
- First home super saver scheme
- Stamp duty exemptions and concessions
- Sign up deals and incentives on offer from select home lenders
It’s important to check whether you’ll be eligible for any of these incentives before factoring them into your budget.
Other resources for contractors looking for a home loan
Owner occupied
20% min deposit
Redraw facility
Owner occupied
20% min deposit
Redraw facility
Owner occupied
10% min deposit
Redraw facility
Owner occupied
20% min deposit
Redraw facility
Cover image source: Ground Picture/Shutterstock.com
This article was reviewed by our Content Lead Mandy Beaumont before it was updated, as part of our fact-checking process.
Owner occupied
40% min deposit
Redraw facility
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