The landscape is continuing to change with banks tightening who they lend to. Once what would have been a straight forward process is now not so simple. When applying for finance, contractors are looked at in various forms and this can affect the finance approval process.
So how are contractors or IPros affected when applying for finance?
Banks generally view contractors as either dependent or independent contractors.
What is a Dependent Contractor?
You would be considered a dependent contractor if Entity Solutions (ES) pays your tax, super etc. You would receive payslips and a Payment Summary from ES.
You would need to provide things like payslips, group certificates and employment contract for the bank to verify your income. This type of contractor is easy for the bank to assess via employment checks with the employer.
What is an Independent Contractor?
You would be considered an Independent Contractor or self employed if you were invoicing separately and paying your own tax, super etc. In this instance, the banks like to verify your income via your last 2 years tax returns and any contracts you have in place.
This type of Contractor generally needs to provide 2 years of tax returns and financial records. Anything less and it’s a case by case scenario for finance approval.
Being prepared
Irrespective of how the banks classify you and your employment status, they are looking for consistency,continuity and stability. Every case is different but having a good solid job/work history adds strength to what may be good income and servicing commitments.
The sooner you work out your options the more likely the process will be smooth and the desired result achieved.
Don’t forget the basics!
Often loan applications fall down because of poor preparation of the most basic requirements, so always ensure:
- You have a clean credit rating
- All bills and credit facilities are paid on time
- Your taxes are up to date and lodged
- You are not on probation when applying for a loan
- You have at least a 5% deposit saved
If you are unsure about your ability to meet the requirements we’ve discussed, perhaps it’s time for a chat. Contact your Customer Executive today to arrange a free no-obligation session with a professional mortgage broker.
Entity Solutions thanks Port Finance Group for providing this article