Entrepreneurs, Are You Prepared To Get A Mortgage Loan?

Before we get into this post, we at Savant Realty Group want to say congratulations!

Not only did you take a chance and start your own business, but you have made it (or on your way to make it) profitable enough to buy real estate. 

That's no easy feat, so kudos to you for all your hard work. 

With the congratulations out of the way, let's get into the real reason you're here: how do we entrepreneurs get pre-approved for mortgages?

This blog post will cover what mortgage lenders need to give you a pre-approval for your mortgage loan and the steps required to provide it when asked. 

What Lenders Need

When it comes to loans, lenders will heavily scrutinize your financial profile. They use documents to build a story between you and money and conclude whether or not you are a high-risk borrower.   

Here's a list of documents lenders will probably ask for when deciding if you will be pre-approved for a loan:

• Identification
• Tax Returns (Last 2 Years)
  • Personal
  • Business
• Financials 
  • Credit Score
  • Credit History 
  • Debt-to-Income Ratio
  • Savings and Assets 
• Customized Info*

*Customized information is information that potential lenders may ask for based on details of your life. 

Set Yourself Up For Success 

Pay Yourself 

Compensating yourself is the most critical part of being pre-approved for getting real estate. It's also one of the most challenging things for entrepreneurs to do.

Business owners who are just starting will often get paid little to none for their work. Then we constantly find ourselves putting the little earnings we take back into our company to "reinvest." 

It's a lose-lose situation.

In reality, we are only hurting ourselves financially and reducing our company's ability to afford to fill roles that we will eventually phase out of. 

 Furthermore, when you are filing your taxes, you appear to be someone who doesn't have the income to afford a mortgage.

Instead of reinvesting your salary, start reinvesting a portion of your company's profits. 

File Taxes 

Make sure that you are constantly filing and paying your taxes correctly.  

Find a Certified Public Accountant (CPA) to correctly file your business and personal taxes.

Keep Money Separate 

Keep the money you and your business make separate.

Avoid using business capital to fund your lifestyle. Instead, make sure that you are compensated correctly for the work that you are doing for your company.

If you plan to invest more of your funds into your company, clearly document the transaction so your accountant can reference it in the future.  

Keep Track Of Documents

If you haven't already, start keeping track of all financial documents for yourself and your company. Having a sound filing system will make it easier for you to provide information when lenders ask for it.  

Documents to track:

• Tax Returns 
• Profit and Loss Statements 

Let Us Help

If you're unsure where to start or you want to see what you need to get on track, then schedule a real estate check-in.

We will give you advice and resources to help you reach your real estate goals. 

Conclusion

Applying for a mortgage as a self-employed individual is easier than you think. It only takes laying down the proper foundation to get a loan to finance the purchase of your home.

That foundation starts with paying yourself for your work and building your financial profile to be considered a low-risk borrower. That starts with your salary corresponding with your work, making it easier for you to develop your credit score and history and bring down your debt-to-income ratio.   

Together, these actions will positively impact your approval odds when applying for a mortgage.