Lenders tend to take a conservative view of your earnings and borrowing power if you’re working as a contractor, but you can still qualify for a home loan at competitive rates.

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2.19%

Fixed - 3 years

2.45%

Macquarie Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.57

/ 5
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2.74%

Fixed - 5 years

2.62%

Macquarie Bank

$1.4k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

2.63

/ 5
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2.68%

Variable

2.69%

Suncorp Bank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.56

/ 5
More details

2.29%

Variable

2.33%

Mortgage House

$1.3k

Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied

3.47

/ 5
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1.98%

Fixed - 1 year

2.38%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.46

/ 5
More details

2.06%

Fixed - 3 years

2.38%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.66

/ 5
More details

2.18%

Fixed - 1 year

2.58%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.15

/ 5
More details

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Home Loans for independent contractors

The world of work has evolved rapidly over the past few years. Both businesses and employees around the country have realised the benefits of working as or with contractors. In Australia, over one million people were working as independent contractors in 2018. This number has been steadily increasing with further growth fuelled by the changes that happened during the pandemic.

Last year, Australia’s leading recruitment agency, Robert Half, predicted a 70:30 split between permanent and temporary employees in the Australian job market by 2023, illustrating the growing contribution of contractors to the country’s economy. Yet, lenders often don’t take a favourable view of the earning potential and income of contractors. Research shows that 26 per cent of Aussies turned down for a loan were refused because they were either self-employed or working part-time.

Before you let out an exasperated sigh, you should know you may still qualify for a home loan as a contractor, self-employed or part-time worker. However, all lenders have different lending policies and these have further changed during the COVID-19 crisis. It’s, therefore, a good idea to apply with lenders that have lending policies which are advantageous contractors or freelancers.

You can contact lenders directly to explore your options or speak with a mortgage broker about lenders they recommend as more likely to approve your mortgage application.

How to get a home loan on contractor income

When you apply for a home loan, your income is perhaps the most important consideration for approval. Lenders evaluate two things when looking at your income. First, can you afford to make the repayments on your home loan? Second, would you be able to maintain the payments in the future?

Contractors and freelancers often don’t earn fixed income each month, which makes it a challenge for them to get approved for a home loan. However, some lenders offer home loans to this growing group of workers in Australia. By finding the right lender, you can secure a competitive home loan deal with features tailored to your requirements. Here are some factors to consider before applying for a home loan on a contractor income:

  • Type of income, what work arrangements you have in place currently and in the future
  • Experience in the industry. Generally, borrowers with more than two-year’s experience are preferred
  • Your living expenses, existing debt and financial commitments
  • Your financial and borrowing history as well as your credit score
  • What is the purpose of the home loan (residential or investment property loan)
  • Whether you are applying independently or with other applicants
  • The amount that you are looking to borrow
  • How much deposit have you saved, which will establish your Loan to Value (LVR) ratio

The success of your home loan application depends on your circumstances and the lenders’ policies. You may have fewer lenders to choose from as a contractor, but you can still land competitive deals from smaller banks and non-bank lenders.

What type of contractor income do you receive?

Contractors are paid in different ways. Understanding your income type will help you narrow down your loan options. Specifically, you need to determine whether a lender will consider your income as a PAYG (Pay-As-You-Go) employee or a self-employed contractor. 

  • PAYG Contractors

PAYG contractors take up jobs for a fixed term with one primary employer. They receive regular payslips, on a monthly or fortnightly basis. PAYG contractors also receive benefits like sick leave and holidays, automatic tax withholding and contributions to super from the employer during the term of their employment. 
 
If you’re applying as a PAYG contractor, lenders will review your salary by looking at your financial history for the past few years. Some lenders may also include overtime pay in your assessable income if you do shift work and receive overtime payments regularly.

  • Self-Employed Contractors 

Self-employed contractors work as sole traders and may work with multiple clients. They don’t receive any leave benefits, a regular salary or payslips. They must have an ABN (Australian Business Number) to invoice their clients to get paid.

Besides the two broad categories of self-employed and PAYG contractors, there are lots of subcategories of contractors, including:

    • IT Contractor or IT Consultant

IT contractors are some of the best-paid workers across the country due to high employer demand and low risk. Yet, many lenders don’t understand the nature of the industry and decline their home loan applications. If you’re an IT contractor, be diligent enough to pick the right lender before applying for a home loan to reduce your chances of rejection.

  • Mining Contractors

Mining contractors are highly paid individuals, but often work on short-term contracts. This can be a challenge for mortgage approval, but some lenders follow a practical approach while analysing your application. Such lenders understand that mining contracts are quickly replaced, if not renewed, without impacting your repayment potential, which increases your chances of approval considerably. 

  • Journalist or Freelance

Contractors working as journalists or freelancers are paid on a per-work basis, like an individual article or project. If you work as a freelancer, you would typically need to provide your tax returns for the past two years to substantiate your income for your home loan application.

  • Subcontractor

Subcontractors are a unique category of contractors. They can be employed on either a PAYG or self-employed contractor basis. Subcontractors are very common in industries like IT, construction, and mining, where they are externally commissioned, often with lucrative pay-outs. If you are applying for home loans for subcontractors, it will help to establish your income type first, to determine the home loan options available for you.

Once your income is established as PAYG or self-employed, your lender will balance your income with your expenses to calculate your liabilities. Your liabilities will include your monthly bills, credit cards and cost of living estimated by the lender. The total of your regular expenses, as calculated by the lender, is subtracted from your income to see if you have enough to make regular repayments on your home loan. If you plan to apply for a home loan soon, it is a good idea to control frivolous spending. This will add to your savings and increase your credibility as a borrower by increasing the cash at your disposal each month for making future repayments.

How much money can you borrow?

With everything else in place, you can generally borrow up to 80 per cent of the property price without making any additional payments. If you’re in a strong financial position, some lenders will loan you over 90 per cent of the property’s price. You will need to pay for Lenders Mortgage Insurance (LMI) which will protect them if you default on your home loan in the future. The amount of LMI payable depends on the size of your loan. You can get an estimate by crunching the numbers using an online LMI calculator. It’s also possible to roll your LMI premium into the loan amount to avoid making an upfront payment.

Contractors can also borrow more than the standard 80 per cent by providing a guarantee to secure their home loan. Parents, siblings, or grandparents can use their property and good credit history to guarantee your home loan and increase your borrowing capacity significantly.

Certain contractors like medical professionals may be considered low risk by lenders and eligible for LMI waivers and special discounts on their home loans. You can visit the medical professionals home loan page for more information on the topic.

The amount of money that you can borrow is not the same as how much money you ‘should’ borrow. When calculating the amount you can afford to borrow, use an interest rate that is one to three per cent higher than the average market rate to cater for any fluctuations. You can use this online repayment calculator to estimate your monthly repayments based on the loan amount and interest rate. You can see what sized loan you can service without compromising on the basics.

As you can see, each type of contractor is treated differently by lenders. While your income is generally going to be acceptable, it all boils down to providing the right information to prove your income to get a home loan approved. For starters, most lenders expect you to be contracting for at least two years before you can get a home loan. If you’ve recently started contracting, you may have fewer options available. Still, it’s worth speaking with lenders directly or a mortgage broker for a more accurate assessment.

You will also need to provide some additional documents along with the standard set of documents like identity and income documents that accompany a home loan application. While the requirements may differ slightly between lenders, you would generally need the following documents when applying for a home loan as a contractor. 

If you’re a self-employed contractor, you will need:

  • Your two most recent tax returns
  • Quarterly Business Activity Statements (BAS)
  • Invoices raised in the past three months
  • Last three months bank of statements
  • Employment contract with your principal employer, if you have one

If you’re a PAYG contractor, you will require:

  • Two recent payslips
  • PAYG summary or group certificate
  • Last three months of bank statements 
  • Employment contract
  • A letter from your employer

Depending on the type of contractor income you make and your lender’s policies, you may be asked to provide additional documents than what is listed above. You can ask your lender to provide you with a comprehensive list so that you don’t miss anything. If you’re working with a mortgage broker, they can help you prepare  your home loan application without missing any important details.

Income Protection and Mortgage Protection Insurance

Being self-employed or a part-time worker gives you a lot of freedom and flexibility in work. However, what will happen if you fall sick or suffer an injury and your income stops entirely for some time? 

You may consider income protection cover to keep your income secure in the case of an injury or severe illness. You can also look at mortgage protection insurance that covers your home loan repayments if you are unable to work due to an illness or injury. 

Do you need a mortgage broker for getting a home loan as a contractor?

No, you don’t need a mortgage broker to get a home loan as a contractor or part-time worker. It is entirely your call whether you want to contact lenders directly for your home loan or seek tailored recommendations from a mortgage broker.

If you’re applying directly, do proper research to find a lender that will use a common-sense approach to judge your home loan application. On the other hand, if you do decide to work with a mortgage broker. You’ll benefit from expert financial advice and information about home loan deals from lenders that are more likely to assess your application favourably. Brokers work with several lenders and stay up to date on the deals and eligibility criteria of most lenders. This equips them to provide you with financial advice about your home loan eligibility and options. Brokers may even have access to unique offers that they pass on to customers, leading to more savings in your kitty.

Ultimately, it is your choice to work with a mortgage broker or not for purchasing your new home. Either way, you can kickstart your home loan journey by comparing home loan deals from multiple lenders in Australia.

Frequently asked questions

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.