Odds of Getting a Home Loan Working as a Contractor in a Very Stable Industry? PA $68000 Last Year Working Full Time Hours

Aerith-Waifu on 16/02/2022 - 17:40
Last edited 16/02/2022 - 17:41

My sister talked to one of the big 4 and after the initial appointment, they said unless she can convert her current contract role to a full time position, the odds of getting a home loan is very slim.

Does anyone have experiences getting a home loan as a contractor working full 38 hours? Her job is very secure despite the fact she is on a year on year contractor role. Her take away pay last year is just over $68000, not the OB average but was better than my old wage, she is single, no credit card, no zip account. High score of 943 on the credit score.

She is going to talk to few lenders but I thought I ask here to get some ideas.

PS: She can show 5 month pay slip with the current company, and 1 and half years with the previous company. Same industry, the 2 jobs are only 2 mins apart walking distance so she even works in the same street. Same job but better pay with the current job $68k, was getting $60k so she jumped when the better offer came.

Financial

Comments

  • El-Rhi on 16/02/2022 - 17:53
    +15

    All banks have different policies when it comes to contractors. Speaking with a reputable mortgage broker should shed some light into which bank to apply for as they should be familiar with the different policies

    • Aerith-Waifu on 16/02/2022 - 18:09

      She has been with them for more than 25 years…………………..I guess these days been royal to something isnt paying off……………..

      • tsunamisurfer on 16/02/2022 - 18:16
        +5

        It has nothing to do with 'royal' (loyal).

        You could be putting in $5 a week into your dollar mite account for 30 years, doesn't mean that grants you a $1m line of credit.

        As mentioned some banks will weigh the employment status more than others, others will go further and consider the applicant's tenure, length of contract, savings history.

  • iNeed2Pee on 16/02/2022 - 18:00
    +3

    Why does your sister not approach a broker?

    I know many may not like them, but they do open the doors sometimes with their connections.

      • iNeed2Pee on 16/02/2022 - 18:11
        +2

        I have been with my current bank the same amount of time. That does not mean jack in the scheme of things.

        Again, a broker may be able to negotiate with the banks, something she may not be able to do. If she has had a bad experience with a broker many years ago, try another broker?

        Has she already been knocked back at all the 4 banks? Why does she not just try and put an application in to see what they say?

        • Aerith-Waifu on 16/02/2022 - 21:40

          She hasnt officially applied due to the fact she is worried if she got knocked back she wont be able to apply with another lender.

  • fredz0r on 16/02/2022 - 18:12

    2nd or 3rd tier lenders might help. Try Pepper or Liberty. percentage rate will hurt though.

    • ZloyKrys on 16/02/2022 - 18:17
      +1

      This is a good option for Plan C. She should be able to get a loan from a decent lender who works with contractors.

      Can't speak of Liberty but not all Pepper loans are expensive some are just a little more like 0.25% higher than Big4 so it's definitely not as bad. But depending on the quality of application etc

      • Aerith-Waifu on 16/02/2022 - 23:38

        if its only 0.25% its not too bad

  • ZloyKrys on 16/02/2022 - 18:14
    +4

    As long as the income is stable enough and in the same industry, a good broker would be able to help

    If her bank does not service contractors and many of them don't, it's not a loyalty or anything like that problem. It's the risk profile and this is why she need to speak with a savvy broker who will find her a deal.

    • ddhar on 16/02/2022 - 18:42

      This

      I was also a contractor and had to apply/refinance my home loans for the past 4 years. The mortgage broker said as long as I had consistent income (I did), the banks would make no issue.

    • Aerith-Waifu on 16/02/2022 - 23:38

      Thanks, looks like broker is the way to go then.

      • ZloyKrys on 17/02/2022 - 10:31
        +1

        Yep. Also, the good thing about brokers is that they typically put applications through a lender that is likely to approve. So she won't get many inquiries in her credit file - so she would not need to explain for every application why that lender declined her credit.

        In contrast, if she goes to the bank directly, they are happy to process documents, do a credit check, and decline. The next bank will not like that she got declined by the other bank so it will make her chances of getting a loan even lower.

        • Aerith-Waifu on 17/02/2022 - 11:16

          GREAT INFO. Thanks heaps!

  • PissLUR on 16/02/2022 - 18:23

    i see that you are located in WA. how about keystart?

    • Aerith-Waifu on 16/02/2022 - 23:46

      Oh, just googled it. thanks

  • rektrading on 16/02/2022 - 18:55

    Three months paychecks and three months savings account statements should be enough for a loan.

    • Aerith-Waifu on 16/02/2022 - 23:47

      Not enough as she gave them the entire payslip since she started at this new company.

  • websterp on 16/02/2022 - 18:57

    While doing this job and while covering all usual expenses how much has she managed to save so far? That would be a key deciding factor for any lender regardless of her job being full time or at a 38hr stable contractor role.

    • Aerith-Waifu on 16/02/2022 - 23:46

      Yes she is able to save around $3000 per month. So her deposit is around 10% for a $550k house.

  • Drakesy on 16/02/2022 - 19:00

    1 in 23.5

    but full time work, albeit contract with $68k a year should get her a loan no probs.
    It won't be a big loan, but it's a loan nonetheless.

    When i was a contractor the bank was hesitant until i could prove that i'd been in the industry for more than 3 years and at least a year in the current role.
    Admittedly my contractor wage was much higher than my full time permanent wage which they're more happy to loan against.

  • bmxr on 16/02/2022 - 19:43

    Broker

  • bemybubble on 16/02/2022 - 19:49

    Broker

  • Seraphin7 on 16/02/2022 - 19:56

    Things may have changed, but last time I looked into this, it wasn't a problem, especially if dealing with a broker.

    There may be a bit more hassle and paperwork, but frankly this sounds like a very straight forward case (again, unless something has changed since I last looked at this a few years ago).

    • Aerith-Waifu on 16/02/2022 - 23:45

      Back then it was called: Low-Doc loan or something like that. Never gotten the loan in the end.

      • Seraphin7 on 17/02/2022 - 07:59

        No not a low doc situation … speak to a recommended broker. My experience was "simply" needing to provide more paperwork than would be necessary as a salaried employee. The offer was still the same at the end.

  • MrThing on 16/02/2022 - 20:08

    credit score means sweet fuk all for a home loan

  • tsukito on 16/02/2022 - 20:18
    -5

    There's a lot of speculation in here right now, so I'll tell you how it was for me a few years ago.

    I was an IT contractor, making around $150,000 a year, before tax. I even had a personal banking manager assigned to me by Commonwealth Bank because they could see how much money was coming into my account.

    Regardless, no bank would give me a home loan. Even through multiple mortgage brokers, I had no luck.

    I literally had to wait until I could secure a Full Time Permanent position some time later before the banks decided they liked me.

    My advice to your sister would be either to:
    * Somehow convert her existing contract position to a permanent one (she'll take a hit on income by doing this, most likely)
    * Use the experience she's got to find another job for as much money as she can get, one that is permanent based (this is what I did)
    * If she is married, and her partner is a permanent employee, see if a mortgage broker can have your sister's income recognised as part of/supplementary to theirs

    • Woody982 on 17/02/2022 - 08:47
      +1

      How much did you have saved and how much was the loan you were going for. This sounds very unlikely…

  • Hardlyworkin on 16/02/2022 - 20:25
    +1

    Are you sure she is a contractor? As in she submits invoices as per her own ABN?

    If she is a contractor she wouldn't be getting payslips, unlike a casual employee for instance.

    • Aerith-Waifu on 16/02/2022 - 23:43

      She is getting paid by the company with payslips and everything, however her role is re-signed every 12 months after the performance review.

      I am pretty sure she said to me it was a contractor role which was offered at the time even though she is getting paid with a payslip and super and all that.

      • Hardlyworkin on 17/02/2022 - 07:44
        +2

        That doesn't doesn't like an independent contractor then but an employee who has a fixed term contract as opposed to a regular ongoing employee.

        • Aerith-Waifu on 17/02/2022 - 11:20

          Are you sure about this? As she was told she is a contractor when she first signed up. I may ask her to look her agreement again.

          You could be on the money on this one, as she is to re-sign every 12 months, so far not a company is not willing not to resign her in the past few years. Her contractor always gets re-signed.

          If she is deemed a fixed term contract with an option of re-sign every 12 months, is that better or worse than contractors?

          • Quantumcat on 17/02/2022 - 11:52

            @Aerith-Waifu: She sounds like she is on a non-ongoing contract but isn't a contractor. Contractors have no rights, can get dismissed at any time for no reason, and get no leave or superannuation but being on a non-ongoing contract you have the same rights as an employee. $68k is also absurdly low for a contractor as you have to cover your own leave and superannuation. Most contractors would be on at least $100k but more likely more.

            Does she get leave and super? That will inform you

            • Aerith-Waifu on 17/02/2022 - 16:26

              @Quantumcat: I just asked her, she doesn't have any leave or holiday pay, which means if she doesn't work, she doesn't get paid, she also doesnt get any public holiday pay as the company she works for are closed on the public holidays, however, she just told me she actually gets Superannuation on top of her $68000 pay.

              So her total pay is: $68000 + Super.

              • Quantumcat on 17/02/2022 - 16:49

                @Aerith-Waifu: That's interesting, kind of in between the two. But on the unstable side of things - if she got sick or needed surgery with recovery time for example she might feel some real pressure. Can I ask what she does? Her pay is very low considering she has to cover her own leave, it would be hard to maintain decent savings (as protection again a long period of not being able to work) on only $68k. Unless she lives in a country town with a low cost of living maybe?

                Definitely need to talk to a broker to find a bank that will be more lenient towards her employment situation.

                • Aerith-Waifu on 17/02/2022 - 17:32
                  +1

                  @Quantumcat: You are right about been the sick bit, no protection whatsoever, she is in the manufactory industry hence the pay isnt very high.

                  However having said that, in Perth things aren't crazy expensive either, you can still get a pretty decent place 10km from the CBD for around $450-$500k.

                  https://www.realestate.com.au/buy/between-0-500000-in-st+jam…

                  Will see her in a few days and see what she is planning to do. Thanks for the input.

  • mitt on 16/02/2022 - 21:01
    +1

    I found once I had a 20% deposit, all the concerns about contract/casual/job stability became non-issues. They jump to sign you up.

    • Aerith-Waifu on 16/02/2022 - 23:44

      WOW! 20% is a lot these days, well done to you!

  • Traveller107 on 16/02/2022 - 21:12

    CALL CBA. They lend to contractors without any hassle. Shouldn't be a problem. I know plenty of people who've been on short 6 to 12 month contracts and have gotten loans with CBA without any trouble. Cheers!

    • Aerith-Waifu on 16/02/2022 - 23:42

      thanks, shall tell her this!

  • bargainhuntingcouple on 16/02/2022 - 22:28

    IT Contractor here with a 8 months Covid Gap. I was on 104000 PA before tax for like 4 years. Wife starting working making 70,000 before tax from Jan 2021.

    We both started working again in Oct 2021. I am on 700 PD before tax and she is on 430 PD BT in a State Govt IT job. We also had 200,000 AUD in bank and some similar amount back in India. We were still not sure that we will get a locan because of the gap.

    We had to take a broker and he got us a loan from CBA. You may try the same.

    • Aerith-Waifu on 16/02/2022 - 23:42
      +1

      She is single though, but might ask cba as a few people has mentioned this already. Thanks

      • bargainhuntingcouple on 17/02/2022 - 12:24
        +1

        Single taking home 100,000 is considered riskier than a couple taking 46,000 & 44,000 by banks. Single source of incomes is considered very risky.

        I got a loan from CBA via a Broker.

        BTW a Broker gets a commision from the bank and nothing from you. If you like the rate he is offering then there is nothing to complain from your side, right?

        • Aerith-Waifu on 17/02/2022 - 16:28

          You are so right, she did she the guys did her assessment did mention about the lending risk on single earnings.

  • Philthy on 16/02/2022 - 23:15

    whats her deposit amount…

    • Aerith-Waifu on 16/02/2022 - 23:40

      I just asked her, about 10% deposit on a $500000 house, cant raise anymore unless she works another few years.

      • jv on 17/02/2022 - 00:07

        on a $500000 house

        A shed ?

        • Aerith-Waifu on 17/02/2022 - 02:18

          In Perth you can still buy something decent for $500k

        • Woody982 on 17/02/2022 - 08:50

          Not everyone lives in the middle of a capital city

                             *shock*  *horror*
          • Aerith-Waifu on 17/02/2022 - 11:18

            @Woody982: Sorry you wont be able to buy something in the CBD for that price in Perth, but you can get a decent place maybe 3x2 in areas like Queens Park, Vic Park for around that place. Only 10-15kms to the city so not too bad.

            • Woody982 on 18/02/2022 - 08:20

              @Aerith-Waifu: Not sure why you're responding to me with that. I was replying to the other bloke saying you could get get a shed for 500k.

              I just bought a 3 bedroom house for less thrn 200k in country SA… sure its a little old being 1965 built, but by no means is it a shit hole.

  • jv on 16/02/2022 - 23:17

    the odds of getting a home loan is very slim.

    Rubbish, just show them your tax returns for the last couple of years… That's all that matters…

    • Aerith-Waifu on 16/02/2022 - 23:41

      I wonder why the lender didnt even ask about this. Thanks though

      • jv on 17/02/2022 - 00:04

        Try another lender.

  • Amazible on 17/02/2022 - 11:27

    Just as a comparison of how difficult it is to be approved when working as a contractor, my friend earns in excess of $125,000 per year, has worked in her current role as a medical researcher for more than 30 years, with 5 of those last 30 years working directly for Queensland Health as a full-time permanent contractor through Hays. Queensland Health refuses to employ her as a full-time permanent employee regularly stating they don't have the budget. As a contractor she receives no sick pay or holiday pay. She is also required to work from home with no rebursement of her expenses. She has a $30,000 5-year car loan with 18 months remaining and no other debt or credit cards. Her credit record and credit score are impeccable. Her home is valued at $1,200,000. She applied for a $600,000 home loan refinance with NAB, with $100,000 of that loan to be used to renovate her home. She was rejected by NAB with the bank stating that as she is a contractor, they consider her work too unstable to be a worthwhile home loan candidate. She spoke to a broker who told her that while ever she remained a contractor, it would remain very difficult to get a loan.

    • ZloyKrys on 17/02/2022 - 11:44

      A couple of points. Depending on the number of dependents, the existence of a co-borrower, and living expenses, her borrowing capacity can be just too low and it's likely being dragged down by the short-term loan, that being the car loan, as my calculator tells me.

      If no dependents, no co-borrower, closed car loan, and modest living expenses she should be able to refinance but this again needs a savvy broker - so she has to find a different one and discuss with them a different lender.

      • Amazible on 17/02/2022 - 11:57

        No dependents, children no longer live at home. No co-borrower, but she is married with a husband who runs his own business and elected to put the home in her name for asset protection reasons. Husband keeps finances completely separate. Husband also has a family trust for his investment properties and shares. Both have super, with hers over $100,000.

        • Quantumcat on 17/02/2022 - 12:00

          That sounds super dodge. How does he contribute to the living costs? And what happens if he dies, does his family get all the assets and she's left with nothing?

          • Amazible on 17/02/2022 - 12:02

            @Quantumcat: 50/50 basis, all expenses equally divided. Husband and wife contribute to a joint bank account for expenses. Her new husband has no living relatives, so I assume his will would state that his assets go to her first and then perhaps her children if she pre-deceases him. I don't know much about this side of their relationship. Are there any other concerns she should have?

          • ZloyKrys on 17/02/2022 - 12:05

            @Quantumcat: I guess she still owns the house?

            • Amazible on 17/02/2022 - 12:14

              @ZloyKrys: Yes, at the moment it's she owns a $1,200,000 house with a $500,000 debt. She was simply wanting to increase that debt to $600,000 so she had $100,000 for renovation.

              • ZloyKrys on 17/02/2022 - 12:18

                @Amazible: She really needs a savvy broker who will look at the numbers and find her a deal. A vanilla Big4 bank and volume broker may not be the ideal go-to options but to me, if the numbers stack up and at the first glance, they do - the quest is to get a broker who is ready to work with her circumstances and put the application through the right lender. Good luck.

            • Quantumcat on 17/02/2022 - 16:54

              @ZloyKrys: I guess, but the husband could bugger off at any moment and leave her with the mortgage and keep all his own assets. Although I don't know anything about marriage law (or any law for that matter), maybe in a divorce she could take half the assets in the trust.

        • ZloyKrys on 17/02/2022 - 12:04

          then it looks doable with the right broker. She may need to be prepared to pay down the car loan though, depending on the numbers.

          • Amazible on 17/02/2022 - 12:08

            @ZloyKrys: Yes, NAB said the same thing. Without the car loan they "might" be able to get it through, but they still have major concerns as she is a contractor not an employee. By the way, this is her second marriage. She lost everything in the first. Her new husband not only raised another man's children, but has significantly increased her wealth through good management of her money. During their time together, she has also completed a PhD. He was independently wealthy before they met.

    • Aerith-Waifu on 17/02/2022 - 16:32

      Oh NAB………..hmmmm…………..sounds like her assets is enough to cover the lose just in case she lose the job. Wonder whats the real reason for rejection consider her experiences.

      • Amazible on 19/02/2022 - 12:53
        -1

        Even more puzzling when you consider the husband banks with NAB and they are very familiar with his financial circumstances. I think it just comes down to a stupid out-of-date rule that says the bank won't lend to full-time permanent contractors.

  • afah0447 on 17/02/2022 - 13:03

    Steer clear of the 'Big 4' and try a credit union or even online bank. Does she have a solid history of saving, like >2yrs? Does she have a decent deposit she can prove or decent liquid assets? A mortgage broker may be useful.

    • Aerith-Waifu on 17/02/2022 - 16:36

      She has been saving really well for the past 2 years indeed, in fact she told me she saved around 10% of her future house pay in the last few year alone (based on $500k purchase).

      She ahs no debt, no car loan, no student loan, no credit card she is not a believer of using money not owed. Only thing I know she does do a bit more than usual is uber eats, but its coming out from her savings account.

  • OzHunterNSW on 17/02/2022 - 14:26

    Why are you a contractor, in a "stable" area… you have to ask this of yourself. Banks see the precartiate nature of your station, but in you failing to do so, possibly explains why you remain a precariate.

    • Aerith-Waifu on 17/02/2022 - 16:37

      I asked her this, they wouldn't put her on as a permanent employee, she would have jumped the opportunity if they did. In fact the last 3 jobs she did are all contractor roles.

  • Rockit22 on 17/02/2022 - 15:59

    Each lender will have their own credit rules, the rules are exactly that. Employment type and monthly gross income are only a few factors considered. If your circumstances don't fit their rules, it's a yes/no result. Just keep trying different lenders or use a broker. I've borrowed and refinanced with multiple lenders as both casual and fixed term (1 year) contracts. Bankwest, Westpac, Bendigo, HSBC.

    • Aerith-Waifu on 17/02/2022 - 16:39

      Yes going to see her in a few days, will ask her how she plans to go ahead. I always thought been a first time home buyer, with steady job (at least for the last 3 years), with no debts, no children, and a saving history of around $50k would be enough. Guess not so much these days.

      By the way I just found out that her $68000 pay does not including Super, Super is to be paid on top of her $68000 by the company.

  • Sweet3st on 17/02/2022 - 22:30
    +1

    My son recently was approved for home loan with Tic Toc. He too works on a rolling contract basis, pretty common these days really. He has had continuous work in industry past 6 years including Covid, but the contracts roll over every 5 weeks. Athena was willing to accept his job status but discounted his income by 20%. He did have a large deposit though so that would have helped. Might be worth chatting to online lenders as well as you’ll get a better rate, son got 1.89%.

    • Aerith-Waifu on 17/02/2022 - 23:00

      Ok thanks many for your input.

  • wlan11g on 19/02/2022 - 19:10

    I went through a broker, who came back with CBA. ANZ was also an option.

    They don't really care about whether you're a contract or employee, just need stable income. They did ask how long I was in my industry for

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