Contractors were considered high-risk customers in the traditional approaches used by lenders.
Still, today, with the expansion of the activities of this group of people in various economic sectors and their significant annual incomes, high street lenders are paying more attention to this group of people.
The contractors’ activities have significantly expanded, and the need for large mortgages for contractors in this section is growing day by day.
High-street lenders, realizing the importance of this issue, have envisaged various approaches to meet the needs of this group of people.
This section addresses the most critical issues raised by lenders and their bespoke approaches to providing large contractor mortgages advice.
But they do have different criteria and formulas for assessing contractors’ affordability, so it can be challenging to find a lender whose benchmarks best match your financial situation. This problem becomes more apparent when contractors demand large mortgages.
For this reason, it is essential to use a contractor mortgage broker to provide advice, guidance, and evaluation of the products on the market. This article addresses the criteria for determining the amount of a mortgage that a contractor is qualified to get.
Also, based on the various formulas used by lenders, the maximum mortgage amount that contractors can get is shown. But keep in mind that lenders use multiple methods to estimate the maximum amount of a mortgage, and you need a specialist contractor mortgage broker to evaluate the methods available in the market.
Determinants of the Maximum Mortgage Amount Payable
There are several factors involved in determining the maximum mortgage amount you are qualified to get. The most important factors are the amount of your annual income and your current expenses. But other factors affect the amount of mortgage you are entitled to.
For example, interest rates, mortgage repayment periods, and mortgage-related costs, each of which can be divided into several categories. In this section, the factors determining the mortgage amount are described in detail.
1. Your Annual Income
Your annual salary, commissions, bonuses, and other earnings during the year will all be considered your income. As a contractor, your average yearly income will be a factor in determining the amount of mortgage you get from a lender.
If your income has fluctuated a lot over the years, lenders will usually base your calculations on your income in recent years. As a rule of thumb, a contractor will get a mortgage at least three times their annual income, which is an average of 4.5 times your yearly income.
1.1. Many lenders also use contractors’ daily rates as the basis for calculating their income. They multiply the contractors’ day (hour) rate by the number of active working weeks in a year (46 to 48 weeks) and the number of their working days (4 to 5 days), resulting in their annual income.
1.2. Contractors may operate solely, jointly, or as a limited liability company. Lenders, therefore, consider different criteria for assessing their affordability.
1.3. Contractors’ assets will include property, stock exchanges, company shares, as well as the bonuses they get, all of which are taken into account by lenders to calculate the amount of mortgages for contractors.
1.4. Your annual salary, commissions received, bonuses, and other receipts during a year will all be considered as your income.
2. Monthly Expenses
Repayment of car mortgages, credit card debts, student mortgages, child fees and other mortgage instalments, property taxes, accident insurance premiums, underwriting and closing costs, mortgage premiums, and fees related to receiving and settling a mortgage; they are current expenses to applicants.
In many cases, the cost of borrowing is also high and should be considered. The closing cost of a mortgage is between 1.5 to 4.5 % and is on average 2.5 % of the property value. But credit card debt and car expenses are the most critical cost factors.
The Amount of Your Deposit to Get a Mortgage
Many lenders accept at least 10% of the total mortgage amount as a deposit. But different lenders offer different rates as deposits for applicants. In other words, the loan-to-value ratio (LTV) is one of the critical factors in determining the maximum mortgage amount a contractor will get.
Contractors with little work experience have to pay a higher percentage of the mortgage amount as a deposit. On the other hand, the higher your deposit, the lower your mortgage interest rate.
How Much Amount of Money am I Qualify For?
In general, the amount of the mortgage you get will depend on your credit score—the higher your credit score, the higher your mortgage amount. The three factors that determine your credit score and the amount of your mortgage are the debt-to-income ratio, the loan-to-value ratio, and your credit score, all of which will significantly impact the amount of your mortgage.
Thus the mortgage you qualify for depends on your situation according to these three factors. As a rule of thumb, a contractor will get a mortgage at least three times their annual income, which is an average of 4.5 times your yearly income.
Lenders consider different income levels to pay 1 to 5 million pounds mortgages for contractors, depending on the deposit amount and interest rate. For example, to get a 1 million pounds mortgage, your minimum annual income must be 200,000 pounds, and for a 3 million pounds mortgage, your yearly minimum income must be 800,000 pounds. These amounts also depend to a large extent on your initial deposit and credit score.
How can I Increase My Maximum Mortgage Aamount?
Your annual income and monthly expenses are two crucial factors that determine the amount of your mortgage. In other words, the maximum mortgage amount that will be granted to you depends on your affordability and the ratio of these variables.
By identifying the factors that affect these two factors and improving them, you will have a better chance of increasing your mortgage amount. For example, some lenders use the 28/36 rule. This means that contractors should not spend more than 28% of their gross monthly income on mortgage instalments.
Your monthly payment for instalments should not be more than 36% of your total other expenses such as credit card bills, student mortgages, and the like.
The Importance of Using a Contractor Mortgage Broker
To find the best products on the market, contractors have to spend a lot of time and energy to find the option they want according to their needs and goals.
But AWS Mortgage expert advisors, with information on a wide range of lenders and products on the market, can help contractors find a million-pound contractor’s mortgages because they have much experience in similar cases and face several cases of million-pound mortgages for contractors every month.
Contractors also can get 1 to 5 million pounds mortgages, but not all lenders accept the contractors’ income requirements. So as a contractor, you will need a specialist contractor mortgage broker to get a large mortgage.
Because a contractor mortgage broker is aware of the needs and goals of the contractors and the products available in the market.