If you’re thinking of buying a house, the real estate market for buyers has never been better. But if you’re a small business owner and need a mortgage, you could be shut out: Since the subprime crisis in 2008, lenders have gotten tough about making home loans to applicants without employer W-2 forms. If you’re self-employed or own your own company, you could find it next to impossible to get a loan approved. Here are six ways to increase your chances and beat the odds.
1) Ask your spouse not to quit her day job. If your partner’s still working for another employer, but has been considering joining your business, ask him or her to wait a little longer. Loan officers are far more likely to approve your application if one of the applicants has a W-2 job.
2) Get a bookkeeper. The days of “stated income” loans are gone: Now, nearly any lender will require full records of your 1099 forms, expenses, and other financial data. A bookkeeper can help you prepare and record the information a mortgage lender will need.
3) Scale back your business deductions. Planning to claim a tax deduction for your brand new iPad? Your accountant may allow it, but if you’re planning to apply for a home loan, not so fast: A high net income will help you qualify for a loan. The more deductions you take (even if you’re entitled to take them), the less attractive you’ll look to a loan officer. So give a little extra cash to Uncle Sam this year for the sake of your future home.
4) Pick up some regular, long-term clients, and get them to vouch for you. If you run a service or subscription-based business, showing a history of lucrative, long-term contracts with clients will give you better chances at getting a loan with a good interest rate. You may even be required to request references from these clients, which will show that they plan on maintaining a business relationship with you in future years.
5) Put down the largest down payment you can afford. A large deposit will give your lender confidence in your financial stability. Try to save enough to make a down payment of at least 50 percent of the purchase price. If your financial history looks stable enough, you’re likely to get your loan approved.
6) Get a co-signer. If worst comes to worst and your mortgage application is denied by multiple banks, see if your parents or another relative with a stable employer will co-sign your mortgage application. It’s a risk for your relative — he or she will become responsible for your debt if you default — but if you can find someone willing to take that chance, your odds of getting a loan approved are much greater.