Small business owners face unique challenges when it comes to purchasing a home. It can take more work to prove income, stability, and assets. Because of this, some mortgage lenders may view small business owners as a more considerable risk. To mitigate these issues, here are Veitengruber Law's top four tips for small business owners trying to purchase a home in New Jersey.
1. Provide proof of accurate, stable income.
It can be harder to get qualified for a mortgage if you have spent years neglecting to report accurate income on your tax documents. Banks and other lenders are looking at your tax documents to determine how much you claimed as income and the stability of that income. So if you know you plan to buy a home soon, make sure to start reporting accurate income a few years in advance. Additionally, you should own your business for at least two years before trying to purchase a home. This will go toward proving the stability of your income and can improve your chance of approval.
2. Separate your personal and business finances.
It can be easy to entangle your personal and business finances as a small business owner. Unfortunately, this can make the details of your finances murky, making it challenging for banks to understand your income and expenses properly. Keep financial documentation for your business and personal finances separate, including separate bank accounts. If you pay yourself a salary, issue yourself a payslip to create a paper trail and keep your business income separate from your personal income.
3. Consider your business while looking at homes.
Small business owners will have different needs regarding the "perfect" home. The key to real estate is "location, location, location"—and this is even truer when you own your own business. Being nearby, even at home, can come in handy when you have to run to the office on short notice. Living in the same area where you operate your small business can foster an even stronger connection to the area. A home with an office can be a huge selling point for small business owners who work from home. Remember that homes require a lot of maintenance. It is important to determine how much time you can regularly spend on your new home. Small business owners are busy. Don't bite off more house than you can reasonably maintain while still running your business.
It can be more difficult for small business owners to determine how much house they can afford since income can vary widely from year to year. Find the average income over the last few years and determine a reasonable home-buying budget. Remember that you must account for the down payment, closing costs, mortgage, taxes, insurance, maintenance, and other fees.
Buying a home can be an exciting event, but it is also a complex transaction. These complexities can become more convoluted if you own your own small business. NJ small businesses are the pride of our communities. We can help you work through the details to get approved for a mortgage and achieve your real estate dreams.