Investment Loan for I.T Contractor?

[TEG]

Is it very difficult to get an IP loan if you are a contractor ?

I´m considering leaving my comfy, stable Full-time job at a large company, and go down the I.T contracting path (prob 12 month contract jobs). Mainly for the $$$ and experience.

My main concern is that banks won´t want to give me a loan for my next IP if I am a contractor..

Does anyone know if itś very hard to get an IP Loan if you are a contractor? (do you need to go ´lo-doc´)?

I want to make Prop. Investing my business, and don´t want to be set back a few years by not being able to get a loan.

Currently, I haven´t had any problems getting loans as I have been with the same company for a few years, on a FT basis.

Thanks.

 

[Rolf Latham]

12 mth fixed term PAYG contracts will probably be like an estrogen pill for your investing career until you get a couple under your belt.

Post NCCP many lenders are now very shy of possible changing circumstances.

Case by case still poss to get them through,but not something id want to rely on, especially if u need LMI

ta

rolf

 

[WillG]

As long as you are contracting in the same industry(& job description) and get a renewal after your first 12 month contract you should be OK

 

[bluestorm]

TEG, 12mth contracts should be OK. I had a few 3mth and 6mth contracts, and the mortgage broker didn't want to put me on the paper work (luckily we got enough loan with wife only).

Moron banks. I can get equivalent of $160K/yr IT contracting, and the banks apparently don't like that. They prefer someone with a perm job (even on $75K), cause it's "safe"

Oh well, build up some time now as permanent for a few years and keep the banks happy, so I can purchase more in 2013.

 

[kelvinh]

Ive been contracting for years.. no hassles with loans etc.. Also alot of places will extend your contract if theres more work.. and your decent

Of course looks better if your doing the same role.. guess it also depends on your LVR...

 

[TEG]

Thanks guys for the replies.

 

[Peter_Tersteeg]

IT contractors are fairly common so it's not too much of a problem, especially if the contract has already been renewed one or twice. The longer a contract has to run can also effect the outcome.

It also helps a lot if you don't require mortgage insuranace (the loan is less than 80% of the property value).

 

[bluestorm]

Ive been contracting for years.. no hassles with loans etc.. Also alot of places will extend your contract if theres more work.. and your decent

Agree, generally contracting with extensions will be no problem in getting loans from the banks. Especially with 12mths contract jobs.

I chose not to extend in the 2.5yrs of contracting, as the beauty of contracting is getting a lot of experience in different places, rather than being stuck in one like a perm. Kind of like moving around, without the stigma of job hopping like a "perm". This kills your chances of loans with the banks though, even when in 2.5yrs the longest time off was 2 weeks, so worked more than a perm (go figure - moron banks!). But like others have said, IT contracting makes up maybe 40-50% of IT workers, so with extensions, it's not an issue to get loans.

Back to perm now however in a dream job..

Funny, I have a friend who was perm for 7yrs in a bank, who's finding it harder to find another job, while I have 15-20 recrutiers call every 6mths to ask if I'm looking for roles. So much for the banks idea of "safety" of a longer job for loans.

 

[TEG]

Funny, I have a friend who was perm for 7yrs in a bank, who's finding it harder to find another job, while I have 15-20 recrutiers call every 6mths to ask if I'm looking for roles. So much for the banks idea of "safety" of a longer job for loans.

This is the exact reason why I want to leave. I work for a large Telco, and the culture feels like a government dept... once you learn your job, it's very difficult to get an advancement within this particular dept.. Even though you spend a lot of time and $$ to improve your skills through various certificates, and know a LOT more than the 'Technical Specialists' who have been there forever, but who know very little about the actual industry and technology (only know how to do their particular job).

If I stay there another few years, i will be too scared to leave, as all I will have known is how to do my particular job, and not really think much or be challenged in a new environment.

I think staying in the same place for too long (10+ years), is actually much more riskier than constantly upgrading your skills and getting experience with different companies, and different environments...because when the axe comes one day, you will find yourself without a job, and won't be able to compete for a job in the market.

 

[bluestorm]

I think staying in the same place for too long (10+ years), is actually much more riskier than constantly upgrading your skills and getting experience with different companies, and different environments...because when the axe comes one day, you will find yourself without a job, and won't be able to compete for a job in the market.

Yep, particular in an industry like IT, where skills and tools from 5yrs ago become obsolete. Same with the friend (a victim of the Westpac/St George merger). You can get so comfortable as a perm sometimes, that you don't spend the time learning what the market needs.

Anyway, in general you should be OK with the banks in getting loans. It may be harder initially on the first contract, as you won't have a track record of contracting (so the banks may be more wary), but with contract extensions, and more contracts, the banks should be OK.

Anyway, good luck. You'll enjoy contracting. One of the benefits is that they will get the perms in on weekends, as they need to pay contractors for an extra day or a few hours (so you pretty much enjoy 9-5 for more money)

I've now moved back to perm. Contracting is good for "jumping" a few pay levels quickly. But after a while you yearn for the comfortable predictability of perm (and less constant learning of new systems and skills).

Cheers

 

[recruit2]

No problems whatsoever getting a loan while contracting.

Most important trick however is to go through a management company for any of your contracting work. On paper you are employed "full time / permanent" by the management company. But in reality, you might jump from contract to contract etc. After a couple of years it just looks like you've been with the same IT company over the long term on a huge salary, so the banks are pleased by that. I haven't even needed to pass on the details of my actual contracts i.e. who the clients are to the banks.

If you get a good management company, they can provide you with some fantastic time and money saving benefits, so don't try to stinge on the $2/hour that they charge, its totally worth it.

A good management company will:
- Provide you with a current "letter of employment" at any time, based on your hourly rate multiplied out to make it look like a salary. E.g. "John Smith is currently employed full time with GenericITContractingCo Pty Ltd earning a full time salary of approximately $192,000. John has been employed with us since 1 August 2005" for example.
- Purchase a laptop for you each year if you want one, which they auto-salary sacrifice out of a couple of pays.
- Manage a novated vehicle lease if you need a lease car and salary sacrifice all your petrol, insurance, servicing, tyres and rego costs. Big savings here when in a high tax bracket.
- Salary sacrifice your mobile phone and home internet expenses as business costs for your line of work. Another great bonus.
- Provide you with regular payslips. Also handy for the banks.
- Provide your public liability insurance and they handle all the company structure etc.

Contracting is becoming more and more common as Australia realises the true value of good IT skills and therefore the pay rates are rising. I've had no weird looks from my bank the past few times when I've mentioned I was contracting etc. I've never had to get low doc loans or anything either.

 

[bluestorm]

Excellent points recruit2.
Using a managment company is good, and I know many IT contractors that use this approach. Even better for loans from the banks that being a PAYG contractor.

I was "stingy" on the extra $2/hour and didn't know how long I would be contracting for, so just went PAYG contractor with the recruiters, so to the banks it looked like I had a new job every 3-6mths, as I was "employed" by a different recruiter each time.

 

[Peter_Tersteeg]

Just don't set up your own contracting company with yourself as director. You're then considered self employed and lenders will want 1-2 full financial years tax returns in order to lend money.

 

[recruit2]

Just don't set up your own contracting company with yourself as director. You're then considered self employed and lenders will want 1-2 full financial years tax returns in order to lend money.

Yes I can back this comment up also. I've never ran my own management/contracting pty ltd myself, but at one stage, I was a director on another IT company I was involved with at the time. It was just as a legal holding body, the company made nothing and cost us nothing. Then I went to go and make a change to my loan, but this one particular bank was so archaic that even though I was earning the big contracting dollars and had a pretty modest LVR, they saw I was a Director and put up all these blockers to stop me from proceeding. The guy was an **** and I am certain to this day thought I was some high flyer and wanted to show me his power by way of not approving my loan application. He was a dud on a power trip.

I thought damn how archaic and changed banks. No problems with St George, I have found them to be very modern in their thinking and they have a very good no-bs approach to most things. You pay a slight premium with their rates, but its not bad, considering the service they have impressed me with repeatedly now, I just stick with them and don't bother to shop for cheaper rates any more.

 

[sash]

Which bank was that put up the blockers???

Are you able to say?

Yes I can back this comment up also. I've never ran my own management/contracting pty ltd myself, but at one stage, I was a director on another IT company I was involved with at the time. It was just as a legal holding body, the company made nothing and cost us nothing. Then I went to go and make a change to my loan, but this one particular bank was so archaic that even though I was earning the big contracting dollars and had a pretty modest LVR, they saw I was a Director and put up all these blockers to stop me from proceeding. The guy was an **** and I am certain to this day thought I was some high flyer and wanted to show me his power by way of not approving my loan application. He was a dud on a power trip.

I thought damn how archaic and changed banks. No problems with St George, I have found them to be very modern in their thinking and they have a very good no-bs approach to most things. You pay a slight premium with their rates, but its not bad, considering the service they have impressed me with repeatedly now, I just stick with them and don't bother to shop for cheaper rates any more.

 

[recruit2]

Newcastle Permanent Building Society - very old fashioned, very dated procedures and systems, also quite inflexible and rigid with everything. Everything with them is all old fashioned paper/fax based, difficult to deal with and always getting you to run around and do too much admin which could be done via a simple email with a normal "modern" bank.

Basically your stupid old country hick bank for old timers with a passbook savings account living in the 1980s.

St George and them are world's apart.

 

[albertwt]

yes I agree that is the nature of IT world, we have to keep ourselves up to date every year.