Buying house after recently starting a business can be tricky. Most lenders are going to want to see at least 2 years of business tax returns in order for you to be considered for a home loan. There are certainly opportunities outside of this but the tried and true rule is 2 years tax returns. So what are some other options or opportunities:
Be in the same industry
If you’re a graphic designer and have been a graphic designer for the last 10 years but recently stepped out on your own to start the business and have at least 1 year of tax returns some banks might be interested in helping. They would likely use a portfolio product in this scenario, which leads to #2.
Be open to an adjustable rate
If you don’t have 2 years returns and perhaps have stayed in the same industry to start your business, a bank might be interested in helping you purchase a home using their in house portfolio loan. This typically means that the term is usually only fixed for 3-5 yrs and will adjust on the subsequent year. The rates on these can sometimes be lower than a traditional 30yr fixed which can be beneficial in the short term.
Open to putting more money down
Most portfolio lenders are going to want you to at least put 20% down on the deal considering you have less than 2 years of self employed income. In some cases they may even ask for more than 20% depending on the other compensating factors such as total assets, debts, history in the industry of self employment, and analysis of self employed income.
Just because you took a chance to start a business doesn’t necessarily mean you are in the dark when it comes to purchasing a home. It might just require some creativity on the behalf of the bank and the loan officer. Circumstances like the ones described above are rare but certainly possible with the right lending institution. If you are self employed and thinking of purchasing a home soon you should contact several banks to see who might be interested in helping. As mentioned, some are certainly better than others. You have to do your homework to get the deal that’s best for you.
Zach is a Mortgage Advisor with State Bank in Dublin, OH. He writes and speaks regularly on the mortgage industry, personal finance, business development, and leadership. His focused approach on educating clients through the mortgage process allows him to help hundreds of new homeowners each year.
Learn more about Zach at www.mortgagecoachzach.com, find him on instagram @mortgagecoachzach, or call/text him at 740-398-4917.