How to Qualify for Homeownership as a Small Business Owner

For those who rejoice in the amount of freedom you gain by being self-employed, I salute you! You have broken the shackles tying you down to a traditional 9 to 5 position; you are the kind of person willing to take a leap of faith in pursuit of an entirely independent lifestyle.

However, understandably it is hard to truly live independently when you find yourself chained to rent contracts and payments. So many of you will want to own a home. However, many freedom seekers will find it difficult to truly reach the American dream of owning a home because of all the hoops the banks insist you jump through to get approved for a reasonable mortgage.

Thankfully, independent business owner and other self-employed individuals can achieve their goal with a little extra push. Here are a few tips you can implement in order to get approved for a reasonable mortgage if you are working as your own boss.

Large Down Payment:

You will find it a lot easier to qualify for a mortgage if you can start off by putting down a large payment. A down payment is usually 20- 25 percent of the total cost of the home. This will accomplish several things: first, it shows your potential lender you are serious about your business, and you’re successful; secondly, this will reduce the risk of the lender because you are financing a smaller amount.

Also by putting down a larger portion of your home, you will lower your future monthly payments. So if you put down at least our recommend percent of your home, you will avoid having to paying Private Mortgage Insurance (or PMI) each month. PMI is a safeguard for the lender in the unfortunate case the borrower defaults on their loan.

Young small business couple buying starter home
Get your Ducks (Documents) in a Row:

Before you start looking at houses be sure to talk to a lender to see what documents you will need. So commonly S-Corporations need to present W-2 statements, profit and loss statements, proof of business accounts, and any asset you possess.

Keep in mind it is not healthy to compare your experience to that of your peers who work the traditional 9-5 grind. That type of work is the norm, so it takes less time to process, and because it is a typical situation, it appears more stable to lenders.

My advice is to look for a lender who has experience with independent employers. This will make the whole experience a lot less grueling. They are better aware, prepared and understanding to your financial situation.

Qualifying Income:

Typically lenders will want to see your business’s tax returns for the last two years when applying for a mortgage. If you have only been in business for yourself for a year you will find it more difficult to find a bank willing to work with you.

Lenders will want to see your net earning and not your gross income. Which could be an issue for some start up businesses.

While in past blog we have discussed the benefits of taking advantage of all available tax write offs to reduce your tax liability, however from a lender’s standout this may not be to your advantage. Lenders are concerned with your net profit on your tax return and if you have received a large portion as a result of deductions you may not earn enough net income to qualify.

Even if you can prove the growth of your company over the past few years lender are mainly concerned with your past two years of profit to approve your loan. This, however, does not mean that your business’s growth isn’t important as well, but it is not enough to be approved by the bank. They are more interested in the consistency of your business.

Don’t Give Up!

Don’t let the struggle deter you from owning your own home. I could list all the benefits of being a homeowner, but you probably know them all. However, I can tell you that it is worth the fight. At ExpressTaxFilings we believe in your success. We were once a start up company as well and understand the challenges you face.

We hope you found this blog interesting and informative. Please share this blog and comment down below to suggest any future topics or share your personal experiences. As always we at ExpressTaxFilings take pride in being IRS-authorised to provide your business a safe, secure, and accurate e-filing process that will save you time and money.

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