Buying a property is just as attractive an idea for a small business owner as it is for anyone else. But what are the most important steps in the process of doing this that you need to be aware of before you get started?
Prove Your Income
Perhaps the biggest issue for any self-employed person is in proving that they have the necessary income to get a mortgage application approved. While this can be more difficult than it is for an employed person who has payslips or bank transfers for every month, it certainly shouldn’t be impossible.
Mortgage lenders will typically accept documents such as a tax return or the bank statements showing your income coming in each month. As a general guideline, expect to be asked for these documents showing a couple of years’ worth of income. Your balance sheet and year-to-date profit and loss statement might also be required as part of the underwriting process.
Each lender has their own set of requirements they’ll ask you to meet before they can agree to lend you money. Therefore, it’s important that you read their guidelines before getting started, to ensure that you can complete the process once you get going.
Make Sure Your Credit Score Is in Order
Your personal credit score is one of the biggest factors that lenders base their decisions on. If this is too low, you’ll struggle to borrow the money to buy a property. Your business credit score isn’t relevant if you’re buying a property as a private individual. If you want to buy a property in the company name, it’s still your personal credit score that most lenders will be interested in seeing.
You can see where you stand by following the process for a Mortgage in Principle agreement based on your credit score, as seen on the Trussle website. Your information is also checked against the criteria of 18 lenders to accurately calculate how much you can borrow, which gives you an understanding of the rate you can expect in the current lending market. It’s a fast process where you get the initial results back in a period of just a few hours, so you know where you stand right away.
Any problems with your credit that are brought up in this way can be solved, but it generally takes time to fix a damaged credit score. This means that the earlier you find out about any issues the better, as it gives you time to make the changes needed to bring your score up to the right level to get your application accepted.
Consider the Reason for Buying
Finally, small business owners might have different reasons for buying a property than other people. While it’s possible that you’re simply looking for a home to live in, it’s also possible that you see this as a chance to make a business investment in a buy to let property.
Some business owners may consider the nature of their income and decide that investing in property is a good way to diversify their earnings and investments or to get regular income during quieter periods of the year. It’s always a good idea to look at your business’s income pattern before deciding when the moment is right to invest in property.
- Also read: Pros and cons of investing in a vacation rental property
- Also read: Load management when starting a business
In the case of looking for a new family home, the biggest factor is likely to be choosing a time when you feel that there is less risk of over-stretching with a mortgage. It’s a big commitment and one that you need to be completely sure about before you go ahead.
As a small business owner, you can invest in property without any fears once you understand these points and how they’re likely to affect your decision.