A full-time job, a “junk” contract, a business activity which form of employment is loved by banks, and which disqualifies on the way for their own “m”? When assessing the client’s creditworthiness, banks take into account the amount of earnings earned, monthly expenses and the number of dependents.
However, the form of employment is also important, because it affects the type and severity of requirements for potential borrowers.
Although the employment contract is one of the most desirable forms of employment, both by the employees themselves and the banks granting loans, income from business activities or employment and work contracts are also accepted by banks and this form of obtaining income does not disqualify them from applying for for a home loan. Of course, there are different criteria that the client must meet, differently calculated capacity, various documents needed when applying for a loan.
Why do banks like full-time employees?
The surest and safest form of employment is an employment contract. In the banks’ opinion, persons earning income on the basis of an employment contract are the most reliable group of borrowers. First of all, because the employment contract is perceived as a guarantee of long-term employment, and this means for the bank timely and trouble-free settlement of loan installments.
In the past, banks granting mortgage loans required employment on the basis of a contract of indefinite duration, but for several years the banks’ approach has been much more liberal and temporary employment contracts also give credit a chance. An employee planning to buy a financial flat with a mortgage can often go to the bank with a loan application after just three months of employment. However, there are banks in which this period is longer, even from six to twelve months. If this requirement is met, the average income from the last 3 months is most often taken into account when calculating the customer’s creditworthiness. In the case of persons employed under a fixed-term contract, there is one additional condition regarding the duration of the contract. It cannot expire in the next days or weeks. Most often, banks require the employee to show a contract that is valid for a minimum of six months from the time the application is submitted.
The deal is not so junk
According to the European Commission, 30% of people employed in Poland work on so-called “junk” contracts, that is, mandate or specific work contracts. There are many negative opinions about this form of employment, including the lack of stability of employment, the lack of paid leave and sick leave in the event of illness, the need for self-discipline and independent organization of work. Often opponents of this form of employment, as an argument, put the banks’ unfavorability towards people working on a mandate contract or a specific task, especially when applying for a loan.
Banks, of course, differentiate the forms of generating income when granting loans, but they do not disqualify people who do not have a permanent form of employment. On the contrary, it can be seen that banks are currently seeing how large a number of potential clients are paid on this basis. Therefore, they adapt their requirements and regulations so as not to remove them from the list of their potential customers. Therefore, when applying for a mortgage, the lack of an employment contract is not a reason to reject your loan application. Banks willingly accept other forms of earning income than a permanent job, of course, after meeting certain conditions.
In the case of mandate or specific work contracts
The minimum period for obtaining income from this source is 12 months, although there are institutions that require a minimum of 2 years. At the same time, in a few banks the period of obtaining income based on mandate or specific work contracts is much shorter and 6 months is enough for the bank to accept such a source of income. In the case of “junk” contracts, the method of determining the amount of income is also important. Most institutions will calculate net income in accordance with tax regulations, taking into account 20 or 50% tax deductible costs. Only a few banks, as net income, will take into account the amounts that affect the customer’s account, without using any income reduction factors. Of course, banks do not require contracts to be signed regularly every month, or to be concluded with only one payer. Some interruptions in the execution of orders are allowed. However, there must be some continuity in the period under consideration. This means that, for example, there may be a maximum of 2-3 months break in the last year.
The entrepreneur must prove himself
The situation is slightly different for people running their own business. In this case, the minimum period of obtaining income is from 12 to even 30 months. The analysis primarily includes customer income calculated as the average of the last 12 months or the average of the current and past year. Revenues are the most important, the level of revenues is slightly less important in this case. Even a very high level of revenues combined with high costs will not cause the bank to positively assess the application. The most important in the analysis is taxable income. Each bank applies its own method of calculating average net income, and for this reason income can be calculated in different ways in each institution.
For business operations, so-called “income stability” is also important
This means that in each subsequent month the income must be close to the average income, it may not differ too much from the calculated amount from the entire analyzed period. Unfortunately, banks do not specify exactly how large income fluctuations may be in individual months, but most often the deviation from the average in each month may not exceed 30%. Each other situation is thoroughly analyzed and does not preclude credit chances, but must be explained in detail by the client.