How to Get a Home Loan as a Small Business Owner
Small Business Women in Business

How to Get a Home Loan as a Small Business Owner

Getting a home loan can be tough. Getting a home loan as a small business owner can be even tougher. Here we detail several tips to help your process.

When you’re a mom, running a home-based business is the dream. You get to be there to care of your kids and raise them exactly how you want — while still earning money and contributing to your household income. But when your business starts to take off, things can get a little complicated. There may come a time when you need access to financial capital so you can build a home office or buy a property with more space.

As a busy mompreneur, you already have a lot on your plate. So we’ve created the following guide detailing how to get a home loan as a small business owner.

Getting this much needed financing can then be used to support the growth of your budding home-based business!

Home Buying During the Pandemic

If you’re looking to buy a new home right now, make sure you know what you’re getting into. The traditional home buying process has gone through several changes since the beginning of the coronavirus pandemic. Because of this buyers need to know what to expect.

For example, Redfin explains that while your options for visiting homes may be limited, online tools like video-chat services can help you tour and buy homes virtually. 

As an entrepreneur juggling kids and a growing business, you’re likely looking for a number of specific features and amenities in your new home. Finding the right home may be a bit more difficult when you can’t step foot inside. Find a great real estate agent who can help you enjoy an immersive home-touring experience from a safe distance!

Getting a Mortgage When Self-Employed

When it comes to answering the question of how to get a home loan as a small business owner, self-employed women have a few barriers to overcome. According to Investopedia, self-employed individuals face stricter requirements when applying for a mortgage. To improve your chances of getting a mortgage at your desired interest rate, try to increase your credit score, pay down existing debt, and offer to make a larger down payment.

Women, in particular, face more challenges securing a home loan compared to men. Due to the gender pay gap, women can have a tough time improving their credit score and getting a low interest rate on a mortgage.

Women are also more likely to be burdened by student loans, holding nearly two-thirds of the country’s student debt! To combat these issues, NBC News suggests setting realistic savings goals and paying down debt to keep your credit score as high as possible.

Types of Home Loans to Consider

A traditional mortgage isn’t the only way to go. Whether you’re looking to buy a new home or access cash to spend on home-business renovations, you have several different loan options to consider.

Some of the most common types of mortgages and refinances include fixed-rate mortgages, adjustable-rate mortgages, FHA mortgages, VA mortgages, USDA mortgages, and interest-only mortgages. These different mortgage options can make homeownership more accessible to you, regardless of your household income, credit score, or down payment.

For example, FHA mortgages are designed to help borrowers purchase homes with low down payments and credit scores!

If you already own a home and are looking for funds to build an addition or finish your unused basement space to support your business, you may want to look at a second mortgage. A second mortgage includes products like a home equity loan or a home equity line of credit (HELOC).

Applying for a Business Loan at the Same Time

It’s generally not a good idea to use a home equity loan for something risky like starting a business. If you need money to fund your business ventures, apply for a business loan instead! A business loan can help you take your business to the next level by providing the working capital you need to purchase inventory, equipment, supplies, or furniture for your home office.

Keep in mind that applying for a business loan and a mortgage at the same time can get you into trouble. Be careful about racking up hard credit checks! Applying for a business loan may reduce your credit score and make it more difficult to get the mortgage rates you want.

It’s also important to remember that your mortgage lender may check your credit score a second time before closing. If you applied for a business loan after getting pre-approved for a mortgage, your credit score may be lower when your moneylender performs their final check.

In the end, it may be best to close on your mortgage before seeking a business loan so you can avoid these issues.

How to Allocate Your Funds

If you’re getting a mortgage so you can buy a bigger home, you don’t have much to consider when it comes to spending your loan money. But if you’re taking out a home loan to cover renovations or home office upgrades, make sure you use your money wisely.

Avoid investing in home office products that you don’t really need. Make your money go as far as possible by spending it carefully. For moms, building a separate home office may be a worthwhile use of that home loan, so you can remove yourself from daily distractions and focus on your growing business.

Some home-based business owners, such as hairdressers, tailors, accountants, and business consultants, may need to meet with clients at their home office. If you plan on welcoming clients to your property, consider using your home loan to build a separate business space so your guests can feel comfortable about visiting your home.

To keep things simple, you could just install a separate entrance in your home so clients can enter your office without walking through your house.

How to Get a Home Loan as a Small Business Owner – Summary

The work of a mompreneur is never finished. Whether you’re tending to your little ones or exploring new business sales channels, it can sometimes feel like that to-do list will never end. Prepare and plan ahead to keep your home loan application process as simple as possible so you can quickly move on to more important things!

Are you an aspiring accounting or finance professional? If you’re looking for guidance in getting your business up and running, The Daily CPA can help you stay on top of industry trends.

Subscribe to the site for the latest in tax and accounting news, resources for women in business, and many more!

1 comment on “How to Get a Home Loan as a Small Business Owner

  1. This is really a helpful article. A small business owner has to be very careful with financial things and you have described how to get a home loan despite being a small business owner. Thanks for sharing this post.

Leave a Reply

Discover more from The Daily CPA

Subscribe now to keep reading and get access to the full archive.

Continue reading