The Small Business Owner’s Guide to Securing a Mortgage

Last Updated: 

October 4, 2023

Owning a business comes with its fair share of rewards and challenges. One of those challenges? Navigating the world of mortgages. For a salaried individual, the process might be straightforward, but for small business owners, it’s a different ball game. This guide will walk you through the crucial steps and strategies to make homeownership a reality for you. 

Key Takeaways on Securing a Mortgage

  1. Lender's Perspective: Small business owners need to understand that lenders view them differently due to variable income. Being aware of this perspective helps in positioning oneself as a trustworthy borrower.
  2. Documentation Preparation: Small business owners should be prepared for more paperwork, including profit and loss statements, tax returns, and business bank statements, to demonstrate their financial stability.
  3. Personal Credit Score: Maintaining a strong personal credit score is crucial for mortgage approval, so monitor, correct discrepancies, and improve your score if needed.
  4. Larger Down Payment: Offering a larger down payment can show commitment and reduce the lender's risk, making you a more appealing borrower.
  5. Specialised Lenders: Research and seek out lenders who specialise in working with small business owners, as they understand the unique challenges of entrepreneurship.
  6. Explanation: Be ready to explain any irregularities in your business income to lenders and provide written statements if necessary.
  7. Co-Signer: Consider a co-signer if you're having trouble qualifying on your own, but ensure they understand the commitment.
  8. Patience and Persistence: The mortgage process may involve questions, additional documentation, or even rejections. Stay patient and persistent, as each step gets you closer to your goal.
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Understand the Lender’s Perspective

First things first, it’s essential to view the situation from a lender’s eyes. They want to minimise risk. To them, a salaried person presents a predictable income stream. But for business owners, income can be variable, making them seem riskier. By understanding this mindset, you can better prepare to position yourself as a trustworthy borrower. 

Solidify Your Documentation

Prepare for a bit more paperwork as a business owner applying for a mortgage like an FHA home loan. Lenders will likely want to see:

Organised, clear documentation can make a significant difference. It showcases your business in a transparent light and eases the lender’s concerns. 

Boost Your Personal Credit Score

Your personal credit score remains a cornerstone in the lending decision. Consistently monitor your score, correct any discrepancies, and work to improve it. A strong score can tip the scales in your favour. 

Consider a Larger Down Payment

Sometimes, a gesture speaks louder than words (or documents). Offering a larger down payment can alleviate concerns regarding your commitment and financial stability. It demonstrates seriousness and decreases the lender’s risk. 

Seek Specialised Lenders

Not all lenders are created equal. Some specialise in working with small business owners and understand the unique challenges you face. Research and seek out these niche lenders. Their familiarity with entrepreneurial challenges could make the application process smoother. 

Be Ready to Explain

Don’t be surprised if lenders ask you to explain certain aspects of your business, especially if there are irregularities in income. It’s a good idea to provide a written statement that details any unusual occurrences. This might include explaining why a particular year had reduced income or outlining the nature of seasonal fluctuations in your industry. 

Consider a Co-Signer

If you are struggling to qualify on your own, consider getting a co-signer. This person essentially promises to pay back the loan if you can’t. It’s a big commitment, so ensure that your co-signer understands the implications fully. 

Stay Patient and Persistent

It’s essential to approach the process with patience. You might face questions, need to submit additional documentation, or even face a rejection or two. Remember that each step brings you closer to your goal. Persistence can make all the difference. 

While securing a mortgage as a small business owner may seem daunting, with preparation and understanding, it’s entirely achievable. By arming yourself with knowledge, keeping organised records, and showcasing your reliability, you can step onto the property ladder with confidence. 

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