Self-Employed and Small Business Homebuyer Issues
No matter if you consider yourself a business owner, independent contractor, freelancer, self-employed individual, or gig worker you may struggle buying a home. This includes millions of Americans and grows every day.
While anyone can qualify to buy a home it may be more difficult for this group of people. While lenders are opening up to more people having at-home jobs and their own business it will be more complicated compared to a W2 job.
A common issue for banks is the unpredictable and fluctuating income of this group. Seasonality and the business environment has an impact on these self-employed individuals.
Documentation Needed For A Small Business Homebuyer
This leads banks to require more documentation regarding your business and income. Unfortunately, this paperwork may show a different picture since cash flow is different then net income for businesses compared to a standard income.
In general, businesses are encouraged to find as many “write-offs” to reduce their taxes. This lower income number is commonly what lenders use.
In some cases you may need to show tax returns and other documentation for the past two tax seasons (not including the current year). For highly profitable businesses who recently started growing these numbers may show a far less profitable and younger view of your business.
Banks may also extend into prior job experience to see if you are likely going to succeed in your business. Changing industries greatly reduces your chance of getting a home via traditional bank loans.
Side hustles may also be common for people and a large chunk of their general income, but often have less documentation. These are often not able to be used as part of your income.
About Owning and Selling Small Businesses for Real Estate
If providing tax documents wasn’t enough you will need to provide a year-to-date profit and loss statement. While some businesses look great on paper you may have purchased assets that take away the current year profitability while taxes and businesses look at some asset purchases over a much longer time horizon.
What your business makes and what you make are not the same. This is often complicated more by the type of business, number of partners, and payments to yourself.
You will also supply deposit accounts, retirement accounts, and other assets you have similar to W2 earners.
Starting or having a business may also have affected your credit score since you likely opened new credit cards or increased your debt. This in turn affects your credit score and debt-to-equity to quality for a loan.
Home Equity Partner has worked with people who run into these issues when looking to buy a home. We may require some of the similar paperwork regarding your business, but understand that a business is not in conflict with your home. We work with you to see what home is right for you based on numerous factors.
Learn more about our small business homebuyer options at https://homeequitypartner.com/rental-vs-lease-option-vs-contract-for-deed/