If you are a business owner who is looking to secure a mortgage, there are a few key concepts to remember.
First, apply to a mortgage company that actually makes mortgage loans to business owners. Most do not, so be sure to ask this question up front. If you near closing, and the underwriter asks for “audited financial statements” – that is a mortgage company that does not make loans to small business owners.
Small businesses do not prepare audited financial statements, because the cost is hefty. If you would like to be connected to reliable local mortgage lenders who DO loan to small business owners, contact Stitely and Karstetter for more information.
Next, make a profit. Each year we encounter clients who are upset by the fact that they cannot obtain a mortgage loan. Why? They didn’t make a profit – or at least they told the IRS they didn’t. If your tax returns show income of $25K and the mortgage payments on your dream house are $40K per year, Seinfeld’s Soup Nazi got it right: “No loan for you!”
Several years ago, we were approached by a mortgage broker who asked us to author a letter verifying the self-employment income for a mortgage applicant. After examining the tax returns and finding zero self-employment income, the mortgage broker said, “He must get his income under the table.” As a small business owner, this is not a situation in which you want to find yourself.
While Stitely and Karstetter would love to help our clients meet all of their tax and accounting needs – committing tax and mortgage fraud is NOT part of the job description! Be sure your tax returns reflect a reasonable income.
Finally, get your business financial records in order before you apply. As surely as the sun rises In the east and sets in the west, a mortgage company will ask for financial statements from you. At the very least, they will ask for a profit and loss statement. If you have a large business, they’ll ask for a balance sheet as well. Don’t wait for them to ask. Two days before closing is too late to start gathering this information. Be prepared, and you will establish credibility with the underwriter. If you are unprepared, the underwriter will question every dollar of your income.
Getting a mortgage is challenging in the best of times for small business owners. Understanding the three points above is key to a tolerable mortgage experience. If you are ready to buy your dream home or refinance your existing one, contact Stitely and Karstetter, and let us connect you with the right mortgage lender today!