Getting A Mortgage As A Small Business Owner
Applying for a home mortgage is always complicated, but the process would be even more challenging if you are a small business owner. After the mortgage crisis in 2008, the government set up tighter regulations to keep lenders from profiting high-risk borrowers, meaning that it is much harder for those with complex tax forms like business owners to get a home loan.
Have a good plan
The difficulty of getting a home mortgage for a small business owner comes from the income proof. Nearly all lenders might require a balance sheet, a P/L statement, and full records of income. Thus, make sure to prepare all of these documents before your application.
It is a good idea to hire an experienced bookkeeper who would help to prepare or record the necessary information. Also, you should build a good relationship with a mortgage broker to get insight or advice about the process. This is helpful for understanding and resolving any problems early.
Show income growth
In addition to applying all the necessary information, it is also essential to look good, too. In most cases, a lender prefers the debt-to-income ratio of your business to be under 40 per cent, depending on some important factors like LTV or credit score.
An underwriter might need to know where your income comes from and how well your company is doing. It seems to be much better to a mortgage officer when your business and income grow gradually over time, and consistent solvency can be a plus.
Avoid tax debt
The main benefit of having your own company is the ability to reduce your tax burden by writing off costs as tax deductions. However, this can have an adverse effect when you apply for a home mortgage. When loan underwriters examine your proof of income in the tax returns, they often see a lower figure due to the deducted expenses.
Thus, your loan amount will be reduced or even rejected. So if you are in urgent need of a home loan, it is better to maximise your income by reducing the deductions. This might sound annoying, but it would pay off in the future.
Improve credit score
While getting a good or high credit score can be a good objective for anyone who is looking for a home mortgage, it is especially important for small business owners as they have many other requirements from most lenders such as the proof of income or paperwork.
Basically, a really healthy credit score would be really helpful just because it represents stability to the loan officers. More importantly, most lenders often pay particular attention to self-employed borrowers with low credit scores, even when they accept a substantial down payment or earn a high income.
