Are you considering getting on the property ladder and buying your first home? Perhaps you are looking to invest in immovable property, or diversify your portfolio? It’s a common belief that entrepreneurs or those who run their own, small business, may struggle in getting decent rates or even approved at all. While there may be a few extra hoops to jump through, it is possible. You may need to provide more detailed information about your income and present evidence of stable revenue, but the chance is still there.
Running your own business
When mortgage lenders look at business owners, they tend to assume they are more high risk. Working in a salaried and contracted role guarantees income of a set amount, regularly. When you run your own business, there are no guarantees. Even the most established and successful businesses can experience a downturn, and this impacts the amount of revenue generated each month. In a salaried role, your wages are paid regardless of whether the company had a bad month, but when you’re on your own, it’s a different story.
Typically, a lender will want to see you’ve been operational for around two years and they will require copies of your income statements, tax returns and bank account statements as well.
As a small business owner, you probably utilise some form of tax optimisation. This is where you legally bring down the amount of taxes you pay through effective corporate structuring. It can also include the use of tax credit, refunds, and deductions. When you are looking to get a mortgage, tax optimisation in various forms could go against you.
Writing off expenses can lead to a lower rate of income after business expenses. This can go against you when the mortgage lender is analysing your finances. The best way to solve this is to reduce the amount you write off in the lead up to making your application, to help you qualify and get a better rate.
See what’s available
Even if you aren’t quite ready to apply yet, it doesn’t hurt to scope out the various deals available. Trussle can be a good source of mortgage advice and information from a range of providers (it provides a comparison service where you input certain details and it evaluates deals). This type of fact-finding across comparison sites and the web is general is a great way to start looking at factors like fees, terms and conditions, mortgage lengths, and even the requirements you will need to satisfy. This will help you prepare and get everything in order before you start applying.
Buying a property is always a big deal and could in fact be one of the biggest financial transactions of your life. Of course, you will plan, but when you’re a small business owner, it’s even more necessary. You need to know what your lender is looking for in terms of a proven revenue track record and a certain level of income. Then make sure you maintain those standards for at least two years before applying. This will significantly increase the likelihood of you being approved.
Another way to increase the likelihood of being approved is to put down a big deposit. The bigger your deposit, the less you have to borrow, and the less risk it is for the mortgage lender. Save up for as long as you can before you start applying. Yes, it may take longer but it will save you money and you can pay the loan back faster.
Getting a mortgage can be a difficult and complex task when you’re a small business owner. That said, it doesn’t have to give you a headache. Consistency, planning, and conscientious management of your finances are the way forward!