Getting a home loan on contractor income can be a bit complex, especially as most banks don’t really understand contractor income. But with the right information, you can successfully apply for a home loan as a contractor.Â
In this article, we will show you exactly how to get a home loan on contractor income in 2024.
(Step-by-step).
The best part?
You’ll see LOTS of real-life examples of these steps in action.
Let’s dive right in…
Table of Contents
Why Do Contractors Struggle To Get A Home Loan?
The banks view contractor income as highly unstable and (wrongly) assume there is a high chance your contract can get cancelled at any time.
While this is often NOT the case, many banks view contractor income in much the same way as casual employment—Short term and unstable.
By applying with the right bank and working with a specialist Mortgage Broker like Hunter Galloway, you’ll have a much higher chance of getting your loan approved. We work with several banks that understand contractor income and can find you competitive interest rates in the current market.
But with that being said, how do you get a home loan on contractor income?
Let’s kick things off with our first strategy…
Step #1: Determine the type of contractor income You receive
Contractors get paid in many different ways.
Understanding your income type will determine what your home loan options are.
Specifically, you want to know if a bank will treat you as a regular (PAYG) employee or a self-employed contractor.
|  | PAYG Contractor | Self Employed Contractor |
Contract Term | Fixed Term, Short term, or Longer Term Contractor | Fixed Term, Short term, or Longer Term Contractor |
One Main Employer? | One main employer | Multiple employers |
Benefits received? | Receive Regular Holiday, sick leave benefits | Do not receive Regular Holiday, sick leave benefits |
Payslips? | Receive regular payslip every month/fortnight | Do not receive payslip as they charge via invoice. |
Invoice? | Do not invoice the employer as paid via payslip. | Invoice employer every month, OR receives a day rate which is paid monthly. |
Tax status | Tax withheld and super paid by the employer | Sole Trader, or company with registered ABN who invoice employer |
Industry Experience | Experience in industry > 2 years | Experience in industry > 2 years |
Time in Role | Time in role > 3 Months | Time in role > 12 Months |
Example | Mining Engineer  IT Contractor IT Consultant Real Estate Agent | Management Consultant  Freelancer Journalist  Mining Consultant |
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While these are the broad categories, there are lots of subcategories of a contractor that we see, including:
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- Mining Contractor. There can be special cases and exceptions for Mining Contractors because they receive some of the highest salaries in Australia. While Mining Contractors may have shorter-term contracts today than previously, we have a few banks who adopt a common sense approach to considering applications. They understand that mining contracts can be easily replaced if they are not renewed.
- IT Contractor or IT Consultant. This is one of the more common types of contractors that we help with arranging home loans. IT Contractors are some of the best-paid workers across Australia, and so many banks do not understand their type of work and decline their applications. Due to the high employer demand and relatively low risk, we have several banks we work with that can assist IT Contractors with getting a home loan.
- Construction Contractor. Contractors in construction might work from project to project, like a unit development or a large mining project. If you supply your own material and tools to the construction project, then some banks will consider you self-employed. So you will need to provide 2 years’ tax returns – but the benefit is that you can be assessed like other contractors.
- Journalist or Freelancer Contractors who work as journalists or freelancers are paid on a per work basis, like for an individual article. As a freelancer, your income will be assessed using a few different methods, but typically you will need to provide the last 2 years’ tax returns to substantiate income.
- Subcontractor Subcontractors can be employed on both a regular PAYG or self-employed contractor basis. Subcontractors are very common in the construction, mining and real estate industry, with many working a job that has been externally commissioned. How your income is treated really comes down to how you are paid. Do you receive payslips (if so, you are PAYG) or invoice your employer (if so, you are considered self-employed)?
As you can see, the banks treat each type of contract worker differently. What type of income will be acceptable is determined by what information you need to provide to get your home loan approved.
Step #2: Collect your documents
Once you are ready to look at home loan options, it’s time to collect your supporting documents.
You’ll need to provide evidence to support your current income and future employment using the following documentation:
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PAYG Contractor | Self Employed Contractor |
2 x most recent payslips  Group certificate (PAYG Summary)  Last 3 months bank statements  Employment Contract  Letter from employer | 2 x most recent years tax return  Tax portals, Quarterly BAS  Last 3 months invoices  Last 3 months bank statements  Employment Contract to the main employer |
Does length of contract matter?
When less than 5-6 months are left on your current employment contract, the lenders will place much more importance on your previous work history to understand employment patterns.
If you have been contracting for over 2 years and have always been employed in short-term contracts, then this is fine. We may just need to provide a copy of your last 2 tax returns to show your income levels have stayed consistent throughout this time.
If you have been contracting for less than 2 years, have only recently changed to a contract, and your contract is about to expire, it could be worth talking to your employer to see if they can extend the contract term.
Case Study: Contractor with less than 6 months on his contract term
Kate & Thomas want to apply for a loan. Thomas has been working for the same employer for the past 3 years, and 4 months ago, he switched to become a contractor as it offered a higher pay rate.
Thomas’ contract only has 2 months left to run, as it was initially a 6-month contract. He is also considered a self-employed contractor because he invoices his employer each month.
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We were able to arrange an 80% LVR loan through a major bank by providing the following documentation:
- Last 2 years’ tax returns (showing he had been working in the same job/industry for over 2 years)
- Most recent quarter’s BAS, showing income level
- Last 4 months’ bank statements
- Last 4 months’ invoices
- Current employment contract and a letter from employer confirming they intended to renew the contract at the end of the term.
- In this case, we used Tom’s new contract income rate (which was 35% higher than in previous years) and helped him borrow a higher amount than if he was relying on his old income.
Feel free to complete our free online assessment form to chat with a mortgage broker who can help you get approved.
Step #3: Calculate how much you earn
Most banks (and many inexperienced brokers) calculate contractor income the completely WRONG way.
Instead of calculating your current income, they’ll rely on figures from 1 or 2 years ago.
…And how does this end?
HORRIBLY!!!
That’s why you want to ensure you are working with an experienced mortgage broker who understands how to calculate your income the right way.
Here’s the best way to calculate your contractor income:
| Â | PAYG Contractor | Self Employed Contractor |
Documents required |
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How to calculate? |
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Case study: Using your current self-employed contractor income
Samuel has been contracting at $1030/day + GST since January 2017. His FY16 taxable income was $100,000, FY17 taxable income was $90,000, and he has a few existing home loans.
His current tax year’s income is projected to be $150,000.Samuel spoke to his bank, who said they would only use $90,000 income towards his servicing.
At Hunter Galloway, we were able to use the FY18 financial year (even though he hadn’t completed his tax returns) by utilising P&L draft accounts prepared by his accountant, the last 4 quarters BAS verifying his income and 6 months’ bank statements showing his contract income had increased.
The result is that we were able to use $150,000 income towards his servicing rather than the $90,000 that his bank advised.
Feel free to complete our free online assessment form to chat with a mortgage broker who can help you get approved.
Step #4: Work out what you need in a home loan
This is important…
What you need in a home loan is much more than a cheap interest rate. Having the right features can help you repay your home loan MUCH faster.
Being a contractor, your income can be fairly lumpy. And if you were to fix your interest rate, you would be limited in making extra repayments.
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You need to weigh the good and the bad when it comes to choosing the type of home loan.
Other home loan features you may need as a contractor include:
- The ability to make extra repayments. This is good for those times when you get extra income and want to use it to make a one-off lump sum payment towards your mortgage. These extra repayments go towards reducing the principal amount on your loan, therefore reducing the total amount of interest you pay.Â
- Redraw facility. Redraw facility allows you to access extra repayments that you have made on your mortgage. This can be useful if you need cash for unexpected expenses or emergencies.
- Repayment holidays. A repayment holiday is a feature offered by some home loans, allowing you to stop making mortgage repayments temporarily. This can be useful for those times when your income is very low.
- Interest-only repayments. In this situation, you only pay the interest on the loan for a specified period of time rather than the principal. Interest-only loans can be useful if you initially want to keep your monthly mortgage payments low. However, interest-only loans can be more expensive in the long run.Â
- Mortgage offset accounts. An offset account is a type of transaction account that is linked to your home loan. The balance of your offset account is taken into account when calculating the interest on your home loan. Similar to a redraw facility, this can save you a significant amount of money on your home loan over time.
Step #5: See how much you can borrow as a contractor
Here’s the deal: Once you have determined what income you can use, your borrowing capacity is simple to calculate.
In this basic example, if your income is $150,000 and you are single without any credit cards, your mortgage broker can arrange a loan of around $942,000. However, if you are a couple and your combined income is $150,000, you will only be able to borrow around $814,000 because you both need to share the cost of living between you.
There are lots of factors that affect borrowing capacity, like credit card limits and living expenses.
Step #6: Talk with a Mortgage Broker that specialises in Contractor Income
The biggest secret to getting a home loan on contractor income is to use the right bank!
Contractor income earners have a much higher chance of being approved if it is submitted to the right bank.
At Hunter Galloway, we are experts and would love to help you buy a home if you are relying on projected income or other contract income types. We can help IT Contractors, Mining Contractors, Construction Contractors, Subcontractors and Journalists with getting a home loan now.
Please call us on 1300 088 065 or complete our free online assessment form to get in touch with a Contractor Income Expert.
Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
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