If you’re wondering how to purchase a home as a business owner, while it is a bit different than a W2 salary paid employee, I’m excited to share it is doable and not too complicated!
The biggest difference is that mortgage lenders want to see you have a track record of successfully running your business. Typically this is shown by having been in business at least 2 years and showing your income is steady or increasing.
Lenders providing a loan to all buyers will evaluate your Debt To Income Ratio. For self-employed buyers, Debt To Income Ratio is another reason to keep your business and personal expenses separate. The lower your Debt To Income Ratio the more attractive you are to a lender. In addition to keeping your personal and business expenses separate by having different credit cards for each, it will make the loan process substantially easier having separate bank accounts for your business and personal.
Self employed borrowers will have more income and employment documentation to provide than a salary paid employee. Preparing for this in advance makes this part of the process smoother.
Some of the income documentation you will provide are personal and business returns for the past two years and all schedules related to those returns. The lender will also ask for your Profit and Loss statements and Balance Sheets for the past two years.
Documentation the lender may ask for to show your employment verification are your licenses, evidence of insurance for your business, letters from your CPA and also your Doing Business As documentation.
Also important to be aware of is that traditional mortgage lenders only factor taxable income into your mortgage loan amount. So, those tax write-offs could negatively impact your loan limit.
A final tip is if you’re able to make a higher down payment, it’s wise to consider as it could make lower interest rates available to you.
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