Business Mortgage

Mortgage Tips For Small Business Owners

Having a small business doesn’t mean it is impossible to obtain a home mortgage. In fact, the lending process can be a little bit more complicated for business owners than personal borrowers as there are more requirements from the lenders. However, if you know how to do it right, it is simple to be approved and purchase your dream house.

Prepare required documents beforehand

Before meeting a lender representative or interacting with a mortgage broker on and applying for your home loan, it is advisable to prepare all necessary documents to save processing time. Basically, you will need to provide the following documents:

  • Personal identification: This would include your birth certificate, driver’s licence, passport, and other kinds of non-photographic ID like the utility bills.
  • Income statement: Make sure to bring along recent business tax returns, assessment notices or financials. These documents are the primary references that most lenders will use to determine your creditworthiness.
  • Financial information: These include regular outgoings, existing assets like cars or real estates, existing investments such as shares and term deposits, debts or credit loans, and bank account statements.

A larger down payment is better

A higher mortgage deposit can give the lenders confidence that you are in a stable financial condition. In general, you should attempt to save enough to have a down payment of about 50 per cent of the purchasing price.

While this amount might be not realistic for every borrower, increasing the deposit that you could put down on a home loan is probably one of the most effective ways to appease a loan officer. This is simply because your income as a business owner might appear lower than it actually is to the underwriter.

Consider co-signing

If your partner or spouse has a day job, make use of that when you are applying for a mortgage as stable and steady income is more likely to convince loan officers. In case they plan to join your business or quit their current job, it is a good idea to persuade them to delay the decision until the lending process has been ended.

If not, ask your parents or relatives to co-sign your home loan. These relationships could be tricky or even risky for a co-signer since he or she will be responsible when you are unable to repay the debt. However, if you have been rejected many times, it can be a good option to consider, particularly if you have a close-knit family.

Be aware of tax changes

Some changes in the tax status of your business can result in a rejection of the lending process. For example, this can be the transition from a W-2 to 1099 income in the middle of your application.

The main reason is that traditional home loans often require two years of stable income in the same profession, which can be a barrier for anyone switching from an employee to a sub-contractor. In short, you should ensure to maintain a stable tax status within two years before trying to obtain a home loan.