How much can a contract worker borrow for a house?

Any general questions you might have in regards to loans and finance.
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alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

How much can a contract worker borrow for a house?

Post by alexjong »

Hi there,

I work in IT while my wife is a freelance journalist. We are both contractors. We live in Perth and have a combined yearly income of around $120,000. We want to buy a place of our own. We are thinking of this apartment in Adelaide Terrace that has an asking price of $510,000. We have $75,000 in our joint savings account, and would need to get a home loan.

However, I have heard that it is difficult to get a home loan as a contractor. Could someone tell me how much I may be able to borrow?

Thanks.

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Otto Dargan
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Re: How much can a contract worker borrow for a house?

Post by Otto Dargan »

Hi alexjong,

It is true that lenders view contractors differently than regular full time employees. Therefore they may have set stricter requirements for contractors to be approved for a home loan. This is because contractors are considered to be in an unstable employment position as there is always a chance of their contract being cancelled.

However, not all lenders view contract workers in the same light. There are lenders who may be willing to approve your loan. The amount that you may be able to borrow depends on the specific circumstances that you are in.

You may be able to borrow up to 90% of the property value, as well as the Lenders Mortgage Insurance (LMI) premium on your loan. It may be possible to borrow even up to 95% if you are in a strong financial position. Even a 100% mortgage is possible if you get a guarantor loan.

The lenders may have different requirements on what documents you need to provide in order to have your loan application processed. The evidence may depend on the type of contractor you are.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

Re: How much can a contract worker borrow for a house?

Post by alexjong »

Hi Otto, thanks for the information. If it is not much of a trouble, could you also tell me about the common types of documents that banks ask for as evidence of my income?

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Otto Dargan
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Re: How much can a contract worker borrow for a house?

Post by Otto Dargan »

Hi alexjong,

Different lenders have different policies on what they accept as proof of your income. If you are self-employed and contract to one main business, you may need to provide:
  • Invoices from the last three months.
  • Bank statements from the last three months.
If you are self-employed and on a fixed term contract as a pay-as-you-go (PAYG) contractor, you will have to provide:
  • Two most recent payslips.
  • A copy of your contract.
If you contract to multiple businesses then you will need:
  • Invoices from the last three months.
  • Bank statements from the last three months.
  • Other documents as asked by the lender.
If you are a sub-contractor then you will need to provide:
  • Tax returns from the last two years.
  • Your yearly taxable incomes should be similar.
If you are a freelancer then you will be assessed as a sole trader and you usually need to submit:
  • Tax returns from the last two years.
  • An employment letter may be accepted if you are borrowing less than 80% of the property value.
Cheers,
Otto
Otto Dargan
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P | 1300 889 743
Home Loan Experts

alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

Re: How much can a contract worker borrow for a house?

Post by alexjong »

Thanks again. Since my wife is British and came to Australia last year, she won’t be able to provide the tax returns. You said that freelancers may be able to prove their income with an employment letter. Could you tell me a bit more about that?

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Otto Dargan
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Re: How much can a contract worker borrow for a house?

Post by Otto Dargan »

Hi alexjong,

The employment letter should meet the following criteria:
  • It should be on a company letter head that has contact numbers and the Australian Business Number (ABN) on it.
  • It has to be dated.
  • It should be signed by an authorised person.
  • It must contain the name of the person who signed the letter.
  • It should contain the name of the employee, gross income, length of employment and status (i.e. permanent part time, casual, etc.)
  • It should explain any unusual circumstances of your employment.
Lenders may ask for additional clarifications related to income such as:
  • Deductions from pay
  • Salary packaging
  • Company car
  • Change of income
  • Employment stability
  • Probation period
  • Overtime income
  • Self-employed contractor
  • Maternity leave
  • Year to date income
  • Pay fluctuations
  • PAYG contractor
Since many employers do not talk directly to lenders due to privacy legislation, you will have to request your employer to write a letter for the lender. It may be better to contact a mortgage broker who can talk to the lender’s credit manager in order to avoid unnecessary delays.

If you need more information regarding your home loan application then you can call us on 1300 889 743 or fill out our free assessment form.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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Don Juan
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Joined: Wed Jul 03, 2013 2:10 pm

Re: How much can a contract worker borrow for a house?

Post by Don Juan »

Hello everyone!

I am a contractor and I work in mines as a heavy vehicle operator. However, my contracts are short term (3 or 6 months). My average yearly income is about $110,000. I want to buy a home and was thinking of the price range of $450,000 - $500,000. Could someone tell me what documents would I need to apply for a loan?

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Otto Dargan
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Re: How much can a contract worker borrow for a house?

Post by Otto Dargan »

Hi Don Juan,

Mining contractors may be able to get a home loan. Some of the documents you will need to provide are:
  • Identification
  • Proof of your income
  • Banking history
However, the loan application from contract workers can be a complicated thing. This is due to the policy differences between different lenders. It is recommended that you seek independent advice from a mortgage broker to discuss your loan application.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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