Since the real estate crisis and financial meltdown in 2008, it has been harder than ever to secure a loan. Banks have drastically changed their lending polices, making it seemingly impossible for self-employed individuals to qualify for a mortgage. However, not all hope is lost, and there are a few ways business owners can boost their chances of success.
If you have owned your business for less than two years, trying to secure a mortgage can be a bit difficult. Long ago, borrowers could depend on loans that didn’t require bank records or income tax documents – these were known as stated-income mortgages. Now, lenders require proof of stable income before they will consider any type of loan. According to Mike Fratantoni, vice president of research and policy development for the Mortgage Bankers Association, lenders look for “a pattern that justifies the decision they’re going to make.” He goes on to add, “They want to be sure the borrower will be able to handle the payment over time. If someone is just starting a business, that’s going to be problematic.” If your new business shares the same line of work that you have been in for many years, certain banks may only require 18 months of income and tax records. Unfortunately, you will still have to meet other loan requirements and have perfect credit to obtain the mortgage.
Get the Paperwork in Order
Today, you must document every single penny you make in order to show exactly how much income you are bringing in. This can involve a lot of paperwork; however, proper documentation along with having the paperwork filled out in advance will help increase your chances of securing a mortgage. Remember that each bank has its own requirements, so it is always best to find out what they are before applying.
Meet Face to Face
When applying for the loan, always go to a walk-in bank. Telephone and online lending programs are quick and convenient, but they lack the possibilities that a face-to-face meeting has. By meeting with the mortgage loan officer, he may be able to suggest other mortgages that you would qualify for.
Take a Tax Hit
When you drive down your taxable income with self-employment deductions, you make it harder to secure a mortgage. Even though this may be an expensive option, it can help land you a mortgage that you might not have otherwise qualified for. After securing the loan, you may be able to refile “forgotten” expenses; however, you should consult an accountant beforehand.
Increase Your Bank Account
Keeping a hefty amount in your bank account will show lenders that, even though your income levels may fluctuate throughout the years, you have enough to cover the bills during periods of low profit. Consider having at least a year’s worth of the mortgage payments in the account to help boost your prospects.
Get a Co-Signer
If you don’t have two years’ worth of records for your business, consider using a qualified co-signer to help you secure a mortgage. It is vitally important, however, that the co-signer has perfect or near-perfect credit and has their own finances in order.