While an increasing number of people work as digital nomads now, enjoying the flexibility and convenience that working online can offer, it can pose a few challenges when it comes to applying for a mortgage. But it’s not impossible – here’s how digital nomads can get on the property ladder and purchase their first home.
Provide evidence of your income
As self-employed individuals, digital nomads need to provide more evidence of their income than someone in a more traditional role. The longer you’ve been working for yourself, the better, as most lenders will require a minimum of three years’ accounts as proof of your business earnings. You may also be asked to provide evidence of clients or projects you have lined up as proof that you have contracts in place.
Minimise gaps between contracts
One of the advantages of working as a digital nomad is being able to pick and choose when you work. The flexibility of the lifestyle is what draws so many people to this way of working. But from a lender perspective, it can be viewed as a risk.
“Mortgage lenders will be looking for consistency with business owners who are reliable, assured monthly payers”, explains Pete Mugleston, Managing Director at Online Mortgage Advisor. “They could become wary or even put off by borrowers with lengthy gaps and sporadic periods of time off between jobs”. To prevent any red flags when you submit your mortgage application, it can help to reduce the length of time between working on contracts and to minimise the number of breaks you take between work.
Get your finances in order
In advance of your property purchase, it’s a good idea to get your finances in order so you’re in the best possible position when it comes to being assessed by lenders. Any precautionary measures you can take ahead of applying for a mortgage, the stronger your situation will be.
This means checking your credit score and monitoring for any errors or mistakes, making sure you’re on the electoral roll, cutting back on unnecessary expenses and paying off and closing any credit accounts you no longer need or use. Make sure you’re paying bills on time and that you’ve cleared as many debts as possible as these all impact your affordability.
Save a bigger deposit
The more money you can invest into your first home, the more appealing you’ll be as a borrower in the eyes of lenders. This is especially true of self-employed people, as it means you’ll require less on mortgage from the lender and your monthly repayments will be lower. Most lenders require a minimum deposit of 10-20%, but you should aim to put down as much as you can. If you only have the minimum period of account history, a larger deposit may be beneficial to convince the lender to approve your application.
Highlight long-term contracts
Lenders want long-term security from their customers, so if you can provide evidence of an ongoing agreement or contract you have with a client, or you can show that you’ve secured these types of agreements in the past that are likely to be renewed in the future, this can strengthen your application considerably.
There’s a certain level of instability when you work for yourself, so any contracts or documents you can provide to support your ability to repay your mortgage without difficulty will help.
Work with a mortgage specialist
Applying for your mortgage yourself is possible and if you have a strong credit score and a positive work history, you shouldn’t face any issues. But consider your knowledge on the matter and bear in mind that this is one of the biggest financial decisions you’ll ever make – sometimes, it pays to hire an expert. Since self-employed individuals and contractors often fall outside the standard criteria for many lenders (or their criteria is far more complex) it can make the process easier if you work with a specialist.
A mortgage broker who has knowledge of mortgages for self-employed or specific contractor mortgages can minimise the risk of your application being rejected and ending up on your credit history. Mortgage brokers have access to a broad range of lenders so you’re also likely to get a better interest rate, in addition to avoiding the risks of being denied your mortgage.
Consider a guarantor
Guarantor mortgages are an option to act as a level of security. With this type of loan, a parent or close relative takes on some of the risk of your mortgage application by offering their home or savings as security against the mortgage and agreeing to cover the repayments in the event that you aren’t able to pay them.
Guarantor deals, of course, pose a large risk for the guarantor as they could be liable for the costs if you default. But they could mean that you’re able to borrow more money and providing there’s complete transparency and trust, they could resolve issues of borrowing for self-employed individuals. If you have someone who is willing to act as a guarantor for you, it’s worth speaking to a professional to outline how the process will work for you both.
Final thoughts
Homeownership is the dream for so many people and while you may enjoy the flexibility of working anywhere in the world, there’s also comfort in knowing that you have your own place to come back to. There’s no denying that any home purchase is a huge decision, but when it’s your first time stepping on the property ladder, it can be even more daunting. As a digital nomad, you have a lot of freedom to choose where you buy, but when it comes to being approved for a mortgage, showcasing stability, consistency and as minimal risk as possible to lenders is the way to improve your chances.
