Your Guide to Getting a Mortgage as an At-Home Entrepreneur
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Buying a home is a big step, and it can be even more intimidating when you’re self-employed.
But don’t let the prospect of homebuying dampen your entrepreneurial spirit! There are many paths toward homeownership, even if it involves a bit more effort for those who are self-employed.
If you’re headed in that direction, consider the following guide to securing a mortgage as a work-at-home business owner, courtesy of Derek Goodman from Inbizability.
What Self-Employed Borrowers Need to Know
When you’re pursuing a mortgage as an entrepreneur, your unique work history could seem like a barrier at first. For one thing, lenders require two years’ worth of tax returns – and your monthly earnings may be a moot point.
While conventional employees may be able to offer pay stubs or proof of employment as part of their mortgage application, self-employed entrepreneurs may not have the option. Specific requirements can vary by lender, but you can expect to need more documentation than the average homebuyer.
Fortunately, being prepared and understanding the purchasing process can help you avoid the pitfalls of buying a home as a home-based business owner.
Critical First Steps
Like any other borrower applying for a mortgage, there are a few items you’ll need to check off your homebuying to-do list.
First, you’ll need a realistic picture of how much house you can afford. Consider your average income per month, plus any trends that could change the figure throughout the year – and potentially impact your ability to repay a loan.
You’ll also need to complete a full application, have your credit examined, and discuss any debts and repayment plans with your lender. Excellent credit isn’t always necessary for securing a home loan. But the fact is, the higher your credit score, the lower your rates, suggests Nerd Wallet.
These steps lead to preapproval, which is the point at which you’re ready to start shopping for properties. Then, it’s time to find a trustworthy real estate agent and start searching – online and in-person – for the ideal property for business and pleasure.
Think Ahead (to Tax Season)
One potential drawback to applying for a mortgage as a business owner is that the tax deductions you qualify for could reduce your net income. Depending on how steady your earnings are and what deductions you file, income disparities could crop up.
You might find that your net income is a much lower figure than the gross figure on your tax return. That could mean a lower pre-approval amount than you expected. While you won’t want to skip over rightfully earned deductions, take a look at how those could impact your bottom line – and mortgage qualification.
Explore Program Options
You may think that a 30-year mortgage with a 20 percent down payment is the only home buying option available. But there are many more and flexible options than standard conventional loans. In fact, you may qualify for a loan type with lower credit thresholds – such as an FHA or USDA loan – with more favorable rates and other perks, says Experian.
Make sure to explore first-time homebuyer programs if you qualify for those, too. First-time buyers may qualify for special subsidies and other perks – and that includes self-employed business owners.
Just be sure to compare rates before agreeing to any one mortgage option, even if the up-front figures sound great. Some built-in fees and payback requirements could outweigh the potential benefits of special loan options.
Getting into the home of your personal and business dreams may take some effort. But there are ways to qualify for – and set up your business in – a new home that checks all the boxes.
The Froogal Stoodent covers a variety of financial topics, from personal finance to investing.
Photo via Unsplash
-by Derek Goodman of Inbizability
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Froogal Stoodent note: Just be sure to run the numbers and make sure that home ownership makes sense for your situation and preferences.
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