Guest Post by Marcus Lansky
Entrepreneurs who operate from their homes can find themselves quickly outgrowing the confines of their home office. While this is great news for your business, it might necessitate moving to a larger home to accommodate both the expansion and the needs of your family. While you may be looking at resale homes, a new home is another great option and will ensure everything is warrantied. These tips from Coleman Tanner Realty can help make buying a house a little less overwhelming.
Assess Your Finances
As an entrepreneur, you likely manage your finances and your income a little differently than you do your personal finances, even if you’re working as an independent contractor or sole proprietor. This can be a bit of a challenge when it comes time to finance a major purchase like a house. Rather than showing a mortgage lender your pay stubs and tax returns, you’ll probably be asked to provide a profit-and-loss statement and several years’ worth of business and personal tax returns. You may also be asked to provide proof of income via bank statements or other transactional documents. Lenders will want to see you have the financial resources to pay a mortgage in a timely fashion. Your credit history will also factor into what kind of financing you qualify for.
Consider a Co-Signer
Many self-employed individuals find it easier to qualify for a mortgage when they apply with a co-applicant, like a spouse or family member, who works a regular salaried position and can easily verify their income. This can be especially beneficial if, as a small business owner, you maximize deductions related to business operations, if you’ve been in business for a short period of time, or if you don’t have a significant revenue stream to demonstrate a steady income. If you happen to carry a significant amount of debt as a business owner, it can also impact how you’re viewed from a financial perspective, so it’s wise to check your credit and your debt-to-income ratio before moving forward in the home search process.
Choosing a Mortgage
You have a number of options for mortgages, all of which have different terms and conditions. A conventional loan requires a 5–20 percent down payment — putting down at least 20 percent allows you to forego mortgage insurance. A variable or hybrid loan has a fluctuating interest rate, while portable and assumable mortgages allow you to transfer an existing mortgage to another home or to take over someone else’s mortgage, respectively. With an open mortgage, you can make additional payments to pay down the balance faster, though it typically carries a higher interest rate. A closed mortgage restricts extra payments, but interest rates are generally lower. Also, consider the best amortization period or the time it takes to pay back the debt. Longer periods mean smaller payments, but you’ll be paying more interest in the process. When choosing a loan, it’s important to remember you will have to renegotiate the terms of your mortgage when the agreement ends.
When searching through the local housing market, you may see “as-is” listings that pique your interest. Buying a house “as-is” means you are accepting it in its existing condition and are not requiring the owner to make any changes or repairs as part of the sales process. This can be a good way to save money and get a deal on a fixer-upper home, but you will want to get a full inspection in advance to ensure there are no major structural problems that will be pricey to fix down the road. Consider retaining an attorney and consulting a general contractor, as well as conducting a title search to ensure there are no red flags. Also, think about the time and money you will need to invest in the home to get it into a good living condition, and weigh that against the cost-savings you’ll realize with this type of purchase.
Whether you’re building a new home, fixing up a resale property, or retrofitting your home to meet the needs of an expanding home-based business, Coleman Tanner Realty can help achieve your vision.
Book an appointment today.