Home loans for contractors

author-avatar By on September 22, 2021
Home loans for contractors

According to ABS data there are over one million independent contractors in Australia, but many lenders have a different process when approving home loans for contractors.

A lender will usually consider contractors to be high risk customers, much like casual workers or sole traders, but it is still possible for contractors to get a home loan.

Contractors can be anything from independent tradespeople, to freelance journalists or an IT contractor.

Here’s what you need to know about home loans for contractors.


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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 27, 2021. View disclaimer.


What do lenders consider a 'contractor'?

Self-Employed

Sole traders are often considered contractors. However with a registered Australian Business Number (ABN) of more than two years, it is possible to get a home loan as a sole trader.

Pay as you go contractors (PAYG)

PAYG contractors take up employment for a fixed term with one primary employer. They receive regular pay slips, usually on a monthly or fortnightly basis.

PAYG contractors also receive sick leave and holidays, as well as automatic tax withholding and contributions to super. PAYG contractors will have their income of previous years assessed by lenders to see if it is consistent. Some lenders may also include overtime pay in your assessable income if you do shift work and receive overtime payments regularly.

Subcontractors

Subcontractors can be employed as either a PAYG or a self-employed contractor. They often work in industries such as IT, mining or construction.

Freelance

Contractors working as journalists, photographers or other freelance media jobs are usually paid on a per-job basis. Like other contract workers, lenders will require two years of income details to verify income.

Why are home loans different for contractors?

Lenders are more specific in their requirements when dealing with contractors. That’s because historically, these home owners have defaulted more often than traditional employees - those paid a regular salary - called ‘PAYG’ employees.

Contractors represent a higher risk because their income might not be as stable as other applicants, even though the relatively instability is usually made up for by a higher income. To protect themselves from defaults, banks are traditionally tougher in their assessment and will often have higher interest rates or lower borrowing limits.

How do lenders calculate your income?

Contractors and freelancers often don’t earn a fixed income each month, and this is the major hurdle to getting a home loan. Lenders are first and foremost concerned with your income.

In most cases, you’ll be asked to evidence your income and future employment through a letter of employment.

Lenders will then determine two things:

  1. Whether you are financially capable of making regular repayment towards your loan.

  2. Can you continue to make these payments for the duration of the loan.

Long term security is where contractors run into problems when applying for a home loan. It can often be difficult to prove as a contractor that you have guaranteed employment for the future.

A standard loan is often 20-30 years, and lenders want to reduce their risk by having customers with secure long-term income.

Here is the info that lenders may need to assess your income:

  • Type of income

  • Experience in the industry (more than two years is preferred)

  • Purpose of home loan (owner occupier/investment)

What will lenders ask for?

Different lenders have different requirements, however standard home loan approvals for contractors will need:

  • The last two years of tax returns

  • Current contracts/future contracts

  • Who you are contracted with and in what industry

Other key information that will assist you in accessing a home loan as a sole trader:

  • Bank account statements

  • Details of personal credit loans and other debts

  • Existing investments (shares, term deposits)

  • Existing assets (such as a car)

How much can you borrow?

Depending on the lender, you can usually borrow up to 80% of the property price. Because of the way lenders assess contractors, having a larger deposit may also help secure a home loan, or may secure a better rate.

Having a guarantor on your home loan may also increase your borrowing capacity, as the lender will view this as assurance the loan will be paid off.

See Also: Tradies prioritising home ownership over starting a business


Image by Annie Spratt via Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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