How to Get a Mortgage as a Home-Based Business Owner

Are you planning on buying a home to make space for your growing business?

Getting a home loan can be challenging for business owners due to the perceived risk of being self-employed. Your lenders will need to see that you have the means to make your mortgage payments, which can be tough if you just launched your business recently.

The best way to navigate this complex financial situation is to hire a local CPA like Dean Owen. With that in mind, here are some other ways to prepare yourself for your mortgage application so you can get the home of your dreams — and a great interest rate to match!


Start Planning Early

The earlier you start preparing for the home buying process, the better. Getting pre-approved for a home loan will ensure that your lender will approve your income before you start looking at homes. A strong credit score and a low debt-to-income ratio will put you at an advantage, so be sure to check these numbers before applying. This is also a good time to connect with a local real estate agent who can help you hunt down properties within your budget and find a place that will accommodate your business and family.


Improve Your Credit Score

As we mentioned above, a great credit score will improve your chances of getting a home loan, so do what you can to increase that number! According to CNBC, you should aim for a credit score of at least 760 if you want to qualify for the best interest rates.

It’s never too late to improve your credit score. If you’re planning on buying a home in the near future, check your credit report and dispute any errors you find, pay all of your bills on time, and start making more frequent payments towards your debt. You could even ask your creditor for a credit limit increase so you can improve your debt-to-income ratio.


Be Strategic with Your Tax Deductions

Writing off business expenses is one of the many benefits of being a small business owner. While these deductions can save you a lot of money, they can actually hurt your chances of getting a mortgage. Writing off a lot of business expenses will reduce your taxable income and make it look like you earn less on paper.

Try to take fewer tax deductions in the year before you plan on buying a home so you can maximize your net income and improve your buying power. It’s a good idea to work with an accountant who can help you decide which deductions you should take and which you should skip. Dean Owen has a suite of services for small businesses and individuals alike, so you know you’re in great hands.


Build Up a Cash Reserve

If your income looks good and you’ve saved enough money for a down payment, you might think you’re ready to buy a home. But you also need to think about cash reserves. As The Balance explains, your lenders will want to see that you have enough cash on hand to cover your mortgage payments in the event that you lose your primary source of income. All liquid assets will count towards your reserves, including retirement savings accounts, stocks, bonds, mutual funds, and life insurance policies.


Assemble Your Documents

You will need to provide a number of documents with your home loan application. Unfortunately, the documentation requirements are much more extensive for business owners, so you’ll want to take your time getting everything in order. For example, to verify your income you will need to provide profit-and-loss statements, two years’ worth of tax returns, and the form 1099s you used to file your taxes. You’ll also need to provide documents displaying your debt-to-income ratio, your monthly household expenses, and a list of your assets.

Navigating the mortgage application process can be very complicated, especially if you’re a small business owner. Take it step-by-step and assemble all the documents you need ahead of time. As long as you cover all your bases and do your due diligence, getting the mortgage you want will be easier than you expect!

Could you use some help recording and preparing all of the information you need to provide to your mortgage lender? Contact your local CPA, Dean Owen at 270-554-0720 today!

Looking for advice you can trust from a Paducah tax professional?

    What our Clients are saying

    "Saved me over $2,000.00!"
    Jane O.

    "Simply the best!"
    Jim O.