Owning a business or being self-employed means you put in a lot of hard work to build your enterprise.
As a self-employed individual, taking on a new financial endeavor of buying a home shouldn’t require heavy lifting and major maneuvering.
While the process to buy a home as a self-employed homebuyer differs from what many homebuyers experience, it’s still possible to buy a home on your terms.
The main difference for self-employed applicants relates to how they verify their income. Because many self-employed people don’t have their own human resources department, this step could take some extra effort. Other than that, the application process will move along just like most other mortgage loan applications.
The lending company you work with will want to review documentation that verifies income. In addition, self-employed applicants are required to balance out their debt-to-income ratio and demonstrate their capacity to take on a mortgage loan. Depending on the loan program, you can expect the desired debt-to-income ratio to be below 45%.
Like other borrowers, you will be asked to provide a strong credit score. Not only does a higher credit score increase the chances of approval, but a favorable score can also qualify applicants for a lower interest rate. With a lower rate, borrowers can save money on their monthly mortgage payment and for the life of the loan.
Back to the income verification portion of the application. Lenders will work with you to verify the various aspects of income. You want to provide documentation that shows financial steadiness, high business performance and a positive business outlook. In short, lenders want to make sure your financial house is in order before making a decision on a mortgage approval.
Lenders will also ask about other aspects that relate to your business, such as what type of business and where it’s located.
Here are some of the documents you’ll need. Self-employed applicants will need to show proof of their employment. Doing so requires them to submit a couple of years of personal tax returns, business tax returns, income statements, business licensing and other related information and contacts.
One thing not yet discussed is how your business expenses relate to the homebuying process.
As you begin to apply for a loan, keep in mind that business and personal expenses, such as buying a home, belong in their own lanes. Keep expenses, financial records and spending summaries separate from personal finances. Business-related finances belong in their own bucket.
Using your personal funds for business purposes can have a negative impact on your application.
So as you can see, with a few simple considerations, buying a home as a business owner isn’t overly complex and can be done just as quickly as any home sale.
All information contained herein is for informational purposes only and, while every effort has been made to ensure accuracy, no guarantee is expressed or implied. Any opinions expressed within blogs, videos, podcasts, interviews, presentations, or other online content are solely the opinions of the individual/author and do not represent the opinions or policy of Premier Mortgage Resources, LLC.