So your home-based business is growing to the point where you need to find another home. First of all, congratulations! Business ownership is not easy, and growth is a good sign of hard work, ingenuity, and persistence.
Now, it’s time to start preparing for your next home purchase. Obtaining a favorable mortgage can be particularly challenging for borrowers who run a small business out of their home, even if they have good credit and stable finances. That’s why Mortgages for America has provided these practical tips to help you navigate the process:
Do a Lot of Planning
Getting a home loan is rarely easy, and it’s typically a little more challenging than normal for home-based entrepreneurs. The key is to start planning early. And you can expect to do a lot of it.
For example, you should prepare to provide lenders with proof of income for at least the last two years, including a Form 1099, profit-and-loss statement, and balance sheet. It’s safe to bet that any lender you meet with will expect these documents, so have them ready before you apply.
If you haven’t yet, consider hiring a bookkeeper. Along with helping you prepare and record the information that mortgage lenders will ask for, a bookkeeper can prove valuable when it comes to improving your everyday business operations, and you will have more time to focus on growing your business! Moreover, think about working with a mortgage broker like Mortgages for America, which has a reputation for helping people from all backgrounds secure home loans.
Part of your planning should also involve the house itself. Think of ways that you can save money on your new home. One option is to look for a home that is selling “as-is.” Just make sure you have any property you’re interested in inspected, evaluate the land records for any concerns, and consult an attorney.
Show Consistency or Growth
Another challenge that comes with seeking a home loan as a home-based entrepreneur is showing that your income has remained consistent over time. As a business owner, your income and business growth might resemble a roller coaster if you were to chart it out.
In most cases, lenders value either income consistency or steady growth year over year, especially if your business is your only source of income. Keep this in mind, and try to keep your debt to income ratio (DTI) under 37%.
Boost Your Credit
As we just discussed, lenders like consistency. If you have a good credit score, it shows that you have remained consistent in paying your bills and debts. The higher your credit score, the more it will help your prospects of securing a favorable home loan. So even your score is average or excellent, look for ways to boost it even more.
Save for a Down Payment
Dishing out a bigger down payment can also make it easier to get a favorable mortgage. For one, it will show the lender that you are financially stable, which will help your prospects of getting a loan of any kind. But anytime you pay a considerable amount down on a home, it will result in lower interest rates on the mortgage.
Evaluate your finances and lifestyle, and determine a realistic goal for your down payment. If you want to go for a home run, save up 50% of the purchase price of your new home. Even if you don’t make it all the way to 50%, this will help you get into the right mindset and motivate you to stick to a budget that helps you save the biggest down payment possible.
Securing a good home loan is not a cakewalk when you run a home-based business. But if you take the steps above, you can put yourself in an excellent position to land a new home that accommodates the needs of both your business and your family. In no time, you could be confidently moving into the next chapter of your life and setting the stage for steady business growth!
Would you like to read more helpful content or learn about our mortgage services? Visit mortgagesforamerica.org today!