Managing your finances effectively as a contractor is crucial when it comes to securing a mortgage. Unlike permanent employees, contractors face unique challenges in proving their income to lenders. However, with the right financial habits and strategies, you can improve your chances of qualifying for a mortgage.
Here are some tips for managing your finances as a contractor to increase your eligibility for a mortgage.
1. Keep Your Finances Organized
One of the first steps in managing your finances as a contractor is staying organized. Properly maintaining your accounts, bank statements, and financial records will help you present your income in the best light to lenders. Here’s what to keep track of:
Invoices and receipts: Ensure all your payments are recorded accurately.
Bank statements: Lenders will want to see your account activity to assess your ability to repay the loan.
Tax returns: As a contractor, having accurate self-assessment returns can help demonstrate your financial stability.
2. Save for a Bigger Deposit
A larger deposit can improve your chances of securing a mortgage and give you access to better rates. While many contractors are eligible for mortgages with deposits as low as 5–10%, putting down a larger deposit (e.g., 20% or more) can:
Lower your monthly payments
Reduce your loan-to-value (LTV) ratio
Improve your borrowing power
3. Maintain a Healthy Credit Score
A good credit score is essential when applying for any mortgage, including contractor mortgages. Lenders use your credit score to assess your creditworthiness and ability to make timely payments. Some ways to maintain a healthy credit score include:
Paying bills and debts on time
Avoiding late payments or defaults
Keeping credit card balances low
Checking your credit report regularly to fix any errors
4. Manage Your Income Consistently
Lenders want to see consistent income, so it’s important to manage your finances to ensure a steady cash flow. While contractors may face breaks between contracts, try to minimize gaps in income and keep a solid history of contract work. Lenders prefer contractors with at least 6–12 months of stable contracting history.
5. Work with a Mortgage Broker
A specialist mortgage broker can help you navigate the complexities of securing a mortgage as a contractor. They’ll help you present your financial situation accurately and match you with lenders who are more likely to approve your mortgage.
Final Thoughts
Managing your finances carefully and ensuring consistent income are key to qualifying for a contractor mortgage. By keeping organized records, saving for a larger deposit, and maintaining a strong credit score, you can significantly improve your chances of getting approved.
At Contractor Mortgage Solutions, we provide expert advice to help contractors secure the mortgage they need.