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3 Things To Know Before Applying For A Home Loan As A Business Owner

Prospective buyers who own business often fail to see how their business can impact their mortgage application. Your business’ loss or profit and the stakes you have in a company are just some of the things that can affect your eligibility for a mortgage.

As a business owner, the mortgage application process can be challenging. To increase the odds of getting your home loan application approved, read the three tips below.

1.    The golden rule for business owners

The requirements for a business owner/self-employed borrower are different from an average borrower. If you have stakes on business and do not know if you qualify as a business owner or self-employed borrower, follow this golden rule for business owners: if you own 25% or more of the voting stock of the corporation, then you are considered to be a business owner/self-employed borrower.

As a self-employed borrower, you will need to present a corporate tax return during your mortgage application. The tax return will show your company’s income, tax deductions, and tax payments. The company’s profit or loss will have a significant impact on your mortgage application.

2.    You can’t hide your business

Some business owners do not know that they need to report their business or their stake in a corporation. This is usually due to a lack of understanding of the mortgage guidelines. Others knowingly do not report their business and keep it as a secret for fear it might affect their mortgage application.

Either way, as a business owner, you should know that you cannot hide your business and business standing from mortgage providers. Through investigation, mortgage underwriters can easily access your actual financial status.

Also read: Yes, Your Business Entity Type Can Affect Your Loan Application. Here’s How

3.    Your business’ loss/profit can impact your mortgage

From your business’ tax return, mortgage lenders will assess your eligibility for a mortgage. If your tax return reflects a loss for the business, it will reflect negatively on the salary that would be declared on your mortgage application. Depending on how many percents of the voting stock you own, this can significantly impact your reported income.

On the other hand, if the business’ tax return reflects a profit, that profit will be added to your reported income. And depending on your income to debt ratio, you can have a lower or higher interest rate attached to your mortgage loan.

Sometimes, mortgage lenders can be very conservative to business owners as the business can have a significant impact on the income, buying power, and commitment to paying off the loan. It is better, therefore, to be transparent and honest on your financial standing when applying for a mortgage loan. If you did a self-assessment and saw that your business standing is not doing great, it is better to wait it out until things will get better.

Seek the professional advice of mortgage brokers like Mortgage Broker Laredo and get pre-approved for your home loan. Improve your credit and financial status if necessary. This way, you will have better chances of getting approval for your home mortgage.

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