A mortgage is arguably the most important and probably the largest financial decision you will make during your lifetime, and we understand that the process can be a confusing experience, without some statements such as ‘contractor candidates may be disqualified from obtaining a mortgage’ adding to the frustration and headache! Thankfully, contractors are no different to any other person who’s decided to become self-employed and as such the banks are happy to deal with you on the same terms as they do anyone else operating in this capacity.
With appropriate information and preparation, you can attain the financing required to purchase the home of your dreams.
If you are a contractor looking to get a mortgage in Ireland in 2023, there are some important things you need to know.
Follow the universal criteria
It’s worth stating from the outset that there are common criteria which everyone has to comply with (irrespective of employment status) when applying for a mortgage.
Applicants will always be required to put down a deposit to qualify for a mortgage. The criteria don’t change just because you are a contractor. It’s 10% for 1st Time Buyers and 20% for everyone else.
Loan to Income
You are capped at 4 x your income as of 2023. If it is a joint application, then this is a combination the joint amount.
The Banks will want to see that you have clearly demonstrated a capacity to repay the mortgage you have applied for. They stress test this repayment by assuming a 2% increase in the mortgage interest rate and will want to see that you have been able to live without the amount for at least the previous 6 months. You can demonstrate this in the form of a rent payment, savings accumulated over the period or a loan repayment which is due to finish prior to the mortgage.
All mortgages are underwritten based on your previous credit history. Whether you are contracting or not, if you have had any issues with this in the past you will find it difficult to navigate past this when it comes to getting approval.
Have a Solid Work History
In addition to following the normal criteria, it's important for contractors to have a reliable and consistent work history - you must remember that you are being assessed on a specific time period. This is because lenders need to assess your reliability and consistency as a borrower. If you have a consistent work record, this can prove that you have a steady stream of income and can assure the lender that you can meet your financial obligations.
It's worth noting that banks require a minimum of 12 months of contracts to be in place for contractors to be eligible for a mortgage.
Downpayment and Strong Savings
As a contractor, you have the ability to maximise your earnings, which can allow you to save more towards your deposit requirements. As highlighted, the standard down payment for mortgages in Ireland is between 10% and 20% and this remains true for contractors.
In fact, it may be worth considering saving up for a larger down payment if it is feasible. This can help mitigate the added complexities involved in obtaining a mortgage and demonstrate your commitment to your financial obligations as a borrower.
Improve Your Credit Rating:
Your credit score is a critical factor in determining your eligibility for a mortgage. Check your credit report for errors and make sure you pay your bills on time. Late or missed payments can have a negative impact on your credit rating, so it's important to stay on top of your bills and make payments on or before the due date.
Keep your records in order and keep in touch
Remember, lenders want to see evidence of your financial stability, so take the time to gather all the necessary documentation and ensure that your finances are in order.
For individuals operating as self-employed, you will need to provide 2 years of certified accounts. For any Icon Accounting clients who are applying for a mortgage, we can provide this along with the following details:
- Certificates of Salary and 3-6 months’ payslips
- Letter confirming that taxes are up to date with a Tax Clearance Cert
- Copy of previous three years of tax returns where relevant
- Financial statements and bank statements for your limited/umbrella company
Find a mortgage broker who understands Contracting
It is always considered best to use an independent Mortgage Broker when trying to source a Mortgage as they will effectively do the ‘shopping around’ for you and make sure you’re getting the best deal for you on the market.
Finally, and equally important, finding a broker who understands contracting is essential. Humdinger Mortgages is an award-winning mortgage brokerage based in Dublin City Centre.
With over 15 years’ experience managing clients’ mortgage requirements, Humdinger bring a straight-talking approach when it comes to helping clients get mortgage approval.
You can contact the team at Humdinger by emailing firstname.lastname@example.org or by calling 01-2557981.