Entrepreneurs often have a difficult time buying a house. This is because most startup entrepreneurs do not have the same steady income. Lenders require borrowers a certain income and employment history before they will approve a loan. Getting loan approval can be challenging if you can’t show a steady income.
Luckily, there are a few things that you can do to increase your chances of getting approved for a loan and realizing your dream of owning a home. The following are four ways you can make your homebuying dreams come true as a startup entrepreneur:
Get Your Credit Score Up
This three-digit number is what lenders use to determine how risky it is to loan you money. The higher your credit score, the better since it is less risky for a lender to lend you money. This means you will likely be able to get a lower interest rate on a loan if your credit score is high.
Lenders can have varying credit score requirements. However, most lenders look for a score of at least 660 or higher. You can get your credit score free from sites like Credit Karma and NerdWallet.
If you have a low credit score, doing the following can help improve your score:
- Pay bills on time
- Keep your credit card balances low
- Avoid opening new credit cards
- Refrain from taking out new loans
- Dispute errors on your credit report
Work With a Reliable Mortgage Lender
It helps if you can find a mortgage lender you can trust even before applying for a home loan. A lender is someone who will help you finance your home. They will guide you through the entire process and answer any questions.
When looking for a mortgage lender, it is vital to shop around. You can compare rates and terms from different lenders. Don’t forget to check the types of home loans offered by mortgage lenders. Finding a lender who can provide the correct type of mortgage will help you finally realize your dream of owning a home.
It would be best to look for a lender with the folowing qualities:
- Have loan officers with years of experience
- Offers different kinds of home loans
- Have reasonable rates
- Also offers in-house financing
- Takes into account your feelings and the level of risk you are willing to take when offering a mortgage type
By finding a lender with all these qualities, you can be sure that you will have a positive experience and be able to successfully buy your dream home.
Check Your Taxes
When applying for a home loan, one requirement most lenders have is employment verification. Since you are self-employed, you will likely have to provide tax documents to verify your income.
Your taxes can be all over the place when you’re a startup entrepreneur. This is especially true if you have not been in business for very long. Lenders will often use your taxes to determine how much money you make.
If you have a lot of deductions, it may look like you make less money than you actually do. You want to show a lender that you have a consistent income. This will give them more confidence in approving your loan.
You can get help from a tax professional to ensure your taxes are in order before starting the homebuying process. They can make sure you are reporting your income accurately and that you maximize your deductions.
Build a Reserve Fund
When you’re self-employed, you never know when your income will fluctuate. This can make it challenging to make ends meet, let alone save money for a down payment on a home. This is why it makes sense to build a reserve fund.
A reserve fund is an account where you set aside money each month. You can use this money for unexpected expenses or cover your mortgage if you have a slow month. Having a reserve fund will give you peace of mind and make it easier to afford your dream home.
However, studies show that as much as 51% of entrepreneurs don’t pay themselves first, making saving difficult. Try automating your savings so you can start saving for a reserve fund. This will help ensure that you always have money going into your reserve fund each month.
For example, you want to buy a house that costs $200,000. If you put down 10%, that’s $20,000. But if you have a reserve fund of $10,000, you only need to come up with $10,000 for your down payment. This can make a big difference when trying to save up for a house.
Startup entrepreneurs often have a hard time buying a home because of their unique financial situation. By building a reserve fund, checking taxes, getting your credit score up, and working with a reliable lender, a home purchase won’t be impossible. Just be patient, do your research, and you’ll find a way to make your dream home a reality.