What Are The Steps To Get A Contractor Mortgage?
Getting a contractor mortgages is a stressful and complicated process for contractors. The most important questions that add to the complexity of the process are what steps contractors must take to get a mortgage. What issues they must follow, and what challenges they will face along the way. This article refers to the different stages of getting a contractor mortgage.
- Select the type of mortgage – In the first step, the contractors must determine the type of mortgage based on their needs (first-time buyers, remortgages, etc.)
- Product research – With a simple search, contractors can know the generalities of each mortgage, including suitability, mortgage terms, lender, and repayment method. At this stage, they should search the market to find the most suitable mortgage according to their needs and conditions.
- Provide the required documents – After selecting the type of mortgage and the lender, the contractor will refer to the lender. The lender, at this stage, announces the list of required documents to the contractor depending on the type of mortgage.
- Assessing the contractors’ credit score – Once the lender has received and approved all the contractors’ documents. It will make additional assessments. These assessments include assessing the contractors’ affordability and valuing the property to ensure that the contractors can make repayments on time and how much the property is worth.
- Mortgage approval – After the lenders have made their assessments and are satisfied with the results of all the assessments, they approve the mortgage application.
- Signing a contract – After the final review of the lender, the contract is exchanged and signed, and the parties sign the contract.
- The lender releases the money – After signing the contract, the lender will release the money, and the mortgage repayment period will begin.
What Do I Need To Do To Secure A Contractor Mortgage?
Due to the many complexities presented above in the contractor mortgage, this section outlines the steps that will help contractors get a mortgage:
Use a contractor mortgage broker
Getting a contract mortgage involves several steps. In addition, contractors operate in various forms, such as umbrella companies or limited companies. But lenders do not know enough about these frameworks, making getting a mortgage more difficult for contractors. Therefore, using a contractor mortgage broker who is familiar with the products available can save a lot of contractors’ money and time.
Save for more deposits
The higher the deposit, the more options are available to contractors because the lender’s risk of lending to contractors is reduced, and the lender is more inclined to offer mortgages to contractors at more favorable rates and conditions. Therefore, contractors should spend all their efforts to save and reduce their costs to have a suitable deposit.
Improve credit score
Credit rating is a key factor in securing a contract mortgage. Lenders may reject their mortgage application if the contractors have significant income and deposits but a poor credit score. Lenders are usually much tougher on contractors’ mortgages, so it is best to avoid anything that might give them a reason to refuse, and this means that improving your credit score is a key factor.
Updating and preparing the documents
Whether working as an umbrella or a limited company, contractors must provide proof of income. Some lenders may ask contractors to look at their paychecks for the last two or three years. Lenders may ask contractors to provide other documents such as bank accounts, financial statements and other documents. Therefore, updating and preparing the lenders’ required documents is one of the key factors in getting a contractor mortgage.
budgeting and estimating the amount of mortgages
Being realistic about what contractors can pay each month is important. Contractors may find that they can borrow even more. But they should also be aware that this may lead to higher monthly payments than they can afford.
Lenders use various methods to assess the contractors’ affordability, so the amount they can borrow depends on the lender. However, when it comes to how contractors’ income is valued, most lenders use the following formula:
Contract day rate x number of working days per week = weekly income (this figure is multiplied by annual income in 48 weeks). The annual income is multiplied by 3, 4 or 5 to calculate the maximum mortgage amount. Other factors such as the contract’s duration and credit score affect these coefficients.
It is also important to consider changes in interest rates as mortgages with variable. Interest rates may increase monthly payments due to interest rate increases in the long term. This can adversely affect the affordability of contractors.
Is It Economical To Go To A Contractor Mortgage Broker?
But going to a contractor mortgage broker will alleviate many of these concerns for contractors. If the contractors turn to a broker, the broker will review the contractor’s needs and provide them with initial guidance in the first step. The contractor’s referral to a broker allows advisors to find the most appropriate deals.
Contractor mortgage brokers find mortgages that meet the needs and financial conditions of the contractors by conducting extensive market research. Through years of working with them, brokers are also aware of the documents lenders need. Contractor mortgage brokers also find friendly lenders for contractors and offer reasonable rates and conditions for contractors.
Contractor mortgage brokers have high bargaining power due to their extensive activities with lenders. And can provide reasonable rates and conditions for contractors. Therefore, using the consulting services of a contractor mortgage broker can save a considerable amount of time and money for contractors. Also, if the contractors go directly to the lenders, they will have to spend much time negotiating with them. And they will probably not be provided with the right rates and conditions.
Talk to AWS Mortgage specialist advisors to benefit from their years of experience providing contractor mortgage consulting services. With years of experience in contracting mortgages, AWS Mortgage advisors are fully aware of the complexities, problems, and challenges of getting a contractor mortgage and can provide you with the right solutions.