3 Home Buying Tips for Small Business Owners
Buying a home can be a long and challenging process for anyone, but for those who are also small business owners there are additional layers of challenges to be aware of. Since being a small business owner does not classify you as a traditionally employed individual, this can be a red flag to banks. Being shuffled into the high-risk category means that you will have to work extra hard to prove your responsible status to lenders and prove stability of income.
While these are roadblocks, they are certainly not dead ends. Small business owners buy homes every single day, and you should not let your entrepreneurship drive stop you from also accomplishing your homeownership goals. Below are a few tips and tricks for you to consider as you attempt to make the home buying process as simple as possible despite existing challenges.
Invest in a Higher Down Payment
If you do not have great credit or are simply just concerned that you will not get approved for the size mortgage that you are hoping for because of your employment status, consider a larger down payment. By increasing the total down payment, you are decreasing the loan amount, and this can also benefit your interest rate. Now you have a choice between paying off your mortgage in a shorter amount of time or enjoying a lower monthly payment over the lifespan of your loan.
If you do not have the cash on hand, look at your personal finances and see if there are ways to create this cash from your existing budget. A life insurance policy is a great example of a way to create available cash from money that you already have. By plugging numbers in a life settlement calculator you can determine if you qualify to sell your policy as well as what its value may be. Once you are armed with this info you can figure out if it is a sensible move towards increasing your potential down payment.
Shop Various Lenders
As you begin your home buying process be sure to always keep in mind your small business owner status. Shop various lenders who have a history of working with buyers like yourself and do not settle for what is easiest or quickest. By building a rapport with your lender of choice you are creating a foundation for communication throughout the course of not just the application and acquisition process but the lifespan of the loan as well. As your business evolves in tandem with evolving interest rates you will be happy to have a contact you can trust when you are questioning things like how running a business will impact your mortgage rates, both initially and in the event of any refinancing opportunities.
Give Yourself Time
Most lenders will want to see at least two years of tax returns from your business before considering you for a mortgage, so if time is on your side, the longer you can wait the better. By putting a significant amount of time in between starting your business and applying for a home loan you are giving yourself a better opportunity to show stable and consistent income, good credit habits, and overall financial responsibility. This will also give you time to understand how to declare your income accurately for the purposes of securing a loan down the road.
