Loanbox Mortgage

Mortgage Basics For Small Business Owners

The paperwork required to get one’s home loan approved can be quite daunting. This is because lenders need these forms to understand the borrower’s financial situation. That way they can determine the best loan suited for that situation.

 

Income is one of the most important variables that lenders look at, which is why home loan applications ask borrowers to provide pay stubs and tax returns. These forms are easy to provide if one is an employee. For business owners, it may require some extra legwork. One of the challenges is determining how one’s involvement in an LLC or a corporation can impact their approval.

 

Here are the things small business owners should keep in mind if they plan to apply for a mortgage:

 

Know One’s Percentage of Ownership

Borrowers must know their equity in the company. For example, those who own 25% or more of the voting stock of a corporation classifies them as self-employed. This means that they must issue a corporate tax return, which will show their information on profit or loss. That information, in turn, could affect their application. Whether the business turned up a profit or not, the borrower must still report that profit or loss in his or her income.

 

If the business turned up a $100,000 profit, for example, and the borrower owns 25% of the business, a broker will add $25,000 to the borrower’s total income. The same is true if the company reported a loss: the amount the broker will subtract from one’s income will depend on the borrower’s equity in the company.

 

Don’t Hide Anything

It’s almost impossible for a borrower to hide his or her stake in a company as underwriters are capable of finding out this information. Business owners who still collect a W2 as an employee must disclose their stake in the corporation.

 

Persistence Is Key

A healthy financial outlook and the documentation to prove it is the most certain path to a mortgage for just about everyone, including small business owners. But what if a business reported a loss for the previous year, what then? Sometimes the best strategy is just to have patience and wait for the business to recover and improve its financial situation. This could be the next financial year or the one after that, so patience is indeed required.

 

Another course of action is to seek sound counsel from a tax consultant of a mortgage broker with a good reputation. With solid advice and a little patience, home ownership will soon be within reach.

 

Make The Best Decision

Planning to take out a mortgage as a small business owner? Call (949) 284-2700 to receive expert advice from a Loanbox Mortgage consultant or visit Loanbox Mortgage for a free quote.

 

A Canadian native, Noelle attended Ryerson Polytechnic Institute in Toronto where she obtained a Bachelor of Technology in Architectural Science. In 1990 she moved to Southern California and got her start in the mortgage industry. In 1994 she obtained her Mortgage Broker License and has since managed mortgage and private lending companies.
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