Can you get a home loan as a contractor?
Generally speaking, it’s possible to get a home loan if you’re a contractor. Your chances of approval can depend on your industry, the type of contract work you do, and your income.
Which industries are best for contractor home loans?
Lenders sometimes prefer contractors employed within certain industries viewed as more reliable. For example, if there’s a skilled IT worker shortage, tech contractors may have a better chance of approval than self-employed applicants in a less stable profession.
PAYG v self-employed contractors
Lenders often look at the type of contract work you do. They may distinguish between self-employed or independent contractors who work for themselves and pay-as-you-go (PAYG) contractors who work for an employer for a set rate on a non-permanent basis. PAYG workers can have more stable income, so lenders may look on them more favourably.
Lenders might also prefer contractor borrowers who work with a single, regular client rather than sporadic work for multiple customers.
What income do contractors need for a home loan?
Like any loan, lenders need to be comfortable you’ll be able to make your repayments. You’ll likely have to prove stable income that’s unlikely to disappear. For example, if you’ve only just started working for yourself, you’re looked on less favourably than someone who has been in business several years. Many lenders require contractor borrowers to have been self-employed for at least a year.
How can I apply for a home loan as a contractor?
Here are a few things that could boost your chances of getting approved for a home loan as a contractor:
Compare a variety of lenders
Policies for self-employed borrowers can vary between lenders. It’s worth comparing your options to find one willing to offer you more favourable terms.
Mortgage brokers may have specialist knowledge about which lenders are more open to contractors. A good broker may be able to find you a lower rate and could also save a lot of time.
Do you need a low-doc loan?
You might need to consider applying for a low-doc or alt-doc loan. These products are for borrowers who can’t provide conventional proof of income like payslips or tax returns.
You’ll still have to provide alternative proof, like bank statements or a letter from your accountant. These products also often have higher rates and fees than conventional home loans.
Consider a financial spring clean
Since lenders may consider you a higher risk as a contractor, it pays to make sure the rest of your finances are in the best shape possible before applying. Getting rid of unnecessary credit cards, not using buy-now-pay-later products, and paying off any existing loans can all help your case. Avoiding gambling transactions and overdrafts could also present a stronger picture of you as a responsible borrower.
You could also take a look at your expenses before applying, as lenders generally need to see your recent bank statements to assess how much you’re spending.
Another possible factor is your credit history. A low credit score can hurt your application, so it’s worth checking to see how you’re looking.
Prove your income
There are a few different ways to prove your income as a contractor. If you’re an independent contractor, lenders generally ask for either one or two years of tax returns, ATO notices of assessment, or payslips if you pay yourself a salary. For PAYG contractors, lenders may ask for your recent payslips, and possibly other evidence of consistent employment.
For low-doc home loans, alternative proof of income may include:
- Business bank statements
- Business Activity Statements (BAS)
- A letter from an accountant
- Evidence of GST and ABN registration
Is it more expensive to get a home loan as a contractor?
Your interest rate won’t necessarily be higher just because you’re a contractor. However, you may have fewer lenders to choose from, which might rule out some providers offering competitive rates. If you don’t have conventional proof of income and need a low-doc loan, you might find higher rates and fees on these products.
Can contractors use grants and government support?
How you earn your income usually isn’t one of the criteria for state or federal government support to buy a home (although how much you earn may be).
Here’s a selection of state and federal government support programs contractors may be eligible for:
