Getting a mortgage can be a daunting process, especially for business owners. Some lenders can be especially exhaustive in how they perform due diligence. However, these challenges make up the essence of being self-employed.
If you are a business owner hoping to get a mortgage, the information compiled here will surely help you. Here are four tips on how to get a mortgage as a business owner:
Having a good credit score is always a plus for anyone who’s planning to get a mortgage, including business owners. It’s one of the first things you need to secure to obtain a loan, in addition to your proof of income and other necessary paperwork.
A good and solid credit score can help as it’ll show your stability to the lender. Lenders usually keep an eye on some business owners because they have a very low credit score, regardless if they have a high enough income or are capable of putting a huge down payment.
Seek assistance from a knowledgeable and reliable advisor for mortgage down payment assistance. Accountants are a crucial source of advice and recommendations for business owners. They can help you get working capital. Aside from accountants, business owners should also seek advice from trusted business networking groups. Once you’ve done this, you can also conduct research and gather information from top alternative funders. Most of them have a comprehensive resource section for businesses regarding the different types of available capital as well as ways to get ready for funding.
As an entrepreneur, you might have a tendency to cut costs and do things on your own. However, there’s nothing wrong with seeking help, especially for areas beyond your expertise. A professional will have the experience needed to address special cases, such as US mortgage for Canadians, other foreign nationals, and even business owners.
It’s crucial for borrowers who own a stake in a business or corporation to know the percentage of their ownership. Generally, if you own more than 25% of the voting stock of the company, you are technically categorized as self-employed. And this categorization means you’ll need to provide a company tax return. Whether it’ll show losses or gains, the tax return can have a huge impact on your mortgage application.
A loss or gain in your business may have a huge effect on your status as a borrower. If you successfully maintained a profitable business, you’re entitled to report some, if not all, of the profit on your income. Again, that depends on your ownership.
As an illustration, say you own 30% of the company and the company earned USD$10,000 profit in the previous year. The lender may add 30% of USD$10,000 (or USD$3,000) to your total income. Remember that the amount may vary depending on the percentage of the applicant’s ownership of the company.
However, if your company reported a loss, you’ll need to apply that loss to the income you have reported. For example, if you own 100% of the voting stock in your business and it lost $10,000 in the previous year, the broker will deduct that amount from your reported income. Similar to profit, the amount will depend on your ownership.
If your significant other has a day-to-day job, you can use that as an advantage when applying for a mortgage because it’s more likely to attract lenders.
But if they’re considering joining your corporation or are planning to quit soon, ask them if they can make that move after your application process has been finalized. However, if that’s not an option, you can ask your parents or other relatives who have stable jobs to co-sign your mortgage. These arrangements can tricky and risky, especially for the co-signer since they’ll be held liable if you fail to pay off your loan.
But if you’ve been denied a couple of times, it’s a good option to consider. Just remember to pay off your mortgage.
By considering the above-mentioned tips, you’re more likely to get a mortgage as a business owner. Don’t feel overwhelmed by the number of requirements to take care of and prepare; just take things one step at a time. These tips should give you a good foundation in preparing to apply for a mortgage. However, there are other details not covered in this quick guide. Make sure to consult your banker or mortgage broker ahead of time if you’re ready to apply for that loan.