The chances are pretty high that you’ve seen business owners, even influencers (who technically are business owners too), live in lavish homes. Well, it can be safely assumed that they’re the homeowner, right? Well, it’s only natural you want to be a part of that too, right?
You’ve done what you can to prepare your business for success, and yeah, things seem to be going fairly well, right? But then, when it’s time to buy a house, the challenges multiply. Unlike employees with their tidy W-2s and pay stubs, business owners are often met with extra scrutiny from lenders.
It can feel personal like they’re questioning all your hard work. The truth is, that lenders aren’t trying to make life harder; they just see self-employment as unpredictable. So, you’re going to have to prepare the right way, now, for the most part, preparation does help. But where do you go from there?
Stay in Business for at Least Three Years
This might sting a little if your business is new, but lenders are hesitant to approve loans for business owners who haven’t been around for a while. They typically want to see at least three years of consistent business activity before they take you seriously.
But why? Because newer businesses come with a higher risk of failure, and lenders don’t want to gamble. However, being in business for three years shows that you’ve weathered the start-up phase, proven your income is reliable, and built a solid foundation.
Know Your Projected Earnings
As a business owner, it’s not just about what you made last year, it’s also about what you’ll make next year. No, seriously, you read that right! Lenders often ask for projections of your future earnings, especially for the next quarter or even the next two years.
Overall, this can be tricky if your income fluctuates with seasons, contracts, or market changes. You should ideally, have a detailed financial forecast ready. Usually, getting a financial advisor can help you with this.
Work with a Lender Who Gets It
Not every lender understands the unique challenges of being self-employed. Some see the words “business owner” and immediately think “risk.” But others take the time to understand your situation and offer solutions that work. Now, it’s about finding the right professional (and yeah, it can be a bit tough).
So, you’ll need to specifically look for lenders who specialize in working with entrepreneurs. Actually, a good chunk of them offer a variety of loan options to suit your financial journey, including programs designed specifically for self-employed borrowers. Yes, there are lenders who do know the world of business, and yeah, they know that incomes fluctuate from time to time.
Separate Your Business and Personal Finances
Mixing business and personal finances might feel easier day-to-day, but it’s a major red flag for lenders. Yes, even if your business isn’t that serious, or the income you bring in is fairly easily, well, it’s still a red flag. So, if everything’s in one account, it’s hard for them to see how much you’re actually earning personally.
Like it or not, you’ll need to set up separate bank accounts, one for the business, and one for personal use. Now, you need to do this because it makes things a little easier during tax season. Plus, it helps lenders see your income clearly.
