I’m a Contractor and earn good income – why wont the banks give me a Home Loan?

Banks, credit unions and building societies simply like wage earners! Wage earners receive holiday pay and sick pay but more importantly will work a minimum number of hours a week and receive the same pay week in week out. This makes it easy for a bank to work out if you will be able to make repayments going forward.

Contractors generally have an end date on the contract so banks get worried about what you are going to do when the contract ends. Contractors generally do not receive sick pay and generally will not be paid unless they do the work.

Most banks will therefore treat contractors when applying for a home loan as self employed and apply the self employed rules requiring you to provide 2 years full financials with tax returns and notice of assessments.

 What type of contractors are there?

There are basically two types of contractors being PAYG or self employed.

  1. PAYG contractors are usually teachers, nurses etc who generally work for one employer. For PAYG contractors, the employer will generally provide you with a payslip for the work done and will take the tax out as you earn.
  2. Self employed contractors are those who work for the one employer and get paid a daily rate e.g IT Contractor. The contractor will invoice the employer using his own ABN or will receive a RCTI Invoice for work done and though will generally have to pay their own tax and possibly even charge GST on those earnings.

How can PAYG or Self Employed Contractors get a Home Loan?

Most banks will not to lend to contractors who do not have two years worth of completed tax returns and notice of assessments. However there are a few Australian lenders out there that will take a common sense approach. Generally you will need to be in current contract for a 3 month period. If PAYG you will be required to provide two payslips. If self employed and contracting to the sole employer then will need to provide 3 months invoices, 3 months bank statements matching up to those invoices and a letter from employer or copy of the contract.

Contractors will also require:

1) Positive asset position – that is tangible assets (cars, cash, equity, shares) are greater than liabilities,

2) Current accounts, credit files,credit cards, personal loans in perfect order with no overdrawn fees for the past 3-6 months,

3) For a Full Doc Home Loan: A deposit 10% Plus costs for a maximum of 90% LVR is available to contractors who contract solely to the one employer and have done so for a 3 month period. For very good clients that meet strict additional criteria, 95% may also be available. This means that strong clients may only require a 5% deposit plus costs.

4) For a Low Doc Home Loan: A deposit 20% Plus costs for a maximum of 80% LVR is available to contractors who Invoice on their ABN’s. For very good clients that meet strict additional criteria, 85% may also be available. This means that strong clients may only require a 15% deposit plus costs.

Conclusion:

In conclusion it is possible for contractors, whether self employed or PAYG, to get a home loan without tax returns and full financials. Contact Non Conforming Loans to discuss Your options.