It’s normal to be excited when you’re getting ready to buy a condo. The thing is, you don’t want to let your excitement blind you along the way. If you overlook certain critical points, you may end up with issues that are hard to come. Some aspects of condo living may increase your costs or lead to frustration, potentially so much so that you regret your purchase. If you want to make sure you’re happy with your new condo. Here are five things you need to know before buying a condo.
Buying a house can be exciting, but the process is also incredibly complex, particularly if you are a solopreneur. When a traditionally employed person needs to secure financing for a home purchase, they typically have little difficulty demonstrating the stability of their income. For solopreneurs, that’s much more challenging. However, that doesn’t mean you can’t get a mortgage as a solopreneur. If you want to buy a home, here’s what you need to know.
When you’re a solopreneur – as well as a freelancer of a self-employed individual – proving your employment is a bit tricky. While people who work regular jobs have documents like paystubs and can often get a statement of employment from their employer, that isn’t’ the case with solopreneurs.
Usually, solopreneurs will need to go the extra mile to verify their employment. They may need to secure documentation from clients, supply a copy of a business license or insurance bond, or provide other kinds of proof. Past tax returns may also be viable sources of information.
In many cases, the lender can tell you before you apply what type of documentation might be necessary. That way, you can work on gathering it before you submit your application for a mortgage.
Income vs. Profit
Most solopreneurs work diligently to claim every potential deduction available to limit their tax liability. While this can be beneficial financially, it will have an impact on your ability to secure a mortgage.
Solopreneurs and self-employed individuals don’t have traditional paystubs to showcase their income. As a result, lenders typically request copies of two years of tax returns (sometimes more), along with other financial documents, like bank statements.
Depending on whether you operate as a business or sole proprietorship, you might need to provide personal and business tax return records and bank statements. Usually, the lender can outline what’s required before you apply.
When reviewing the information, the lender is concerned about your income, not profitability. If your cunning use of tax deductions significantly lowers your taxable income, that lower figure is what they’ll use to determine how much you can afford to pay.
Some lenders view solopreneurs and self-employed professionals as riskier borrowers than those who have traditional employment. Often, with an increased risk level comes higher interest rates.
Now, precisely how much your solopreneur status will matter depends on a range of factors. If you have an excellent credit score, intend to put at least 20 percent down on the home, and need a small loan amount in comparison to what you could potentially afford, the impact may be less significant. However, if you’re looking for a large loan, can only put a small amount down, and have only a good or fair credit score, it could make a difference.
Tips for Getting a Mortgage as a Solopreneur
If you’re a solopreneur, there are things you can do to increase your odds of getting a mortgage. First, formalize your business with a license, and pay yourself as a W-2 employee instead of taking an owner draw. This can make it easier to show your employment and income, as well as separate some of your business finances from your personal situation.
Additionally, reduce your debt load, build a solid emergency fund, and make a larger than necessary down payment. You may also want to bypass certain tax deductions, allowing you to increase your income on your tax returns.
It’s also smart to shop around for your mortgage. Some companies are more welcoming to solopreneurs than other lenders. If you can find one that commonly works with self-employed professionals, freelancers, and solopreneurs, you may have an easier time meeting their requirements.
Do you have any other insights that can help someone get a mortgage as a solopreneur? Share your thoughts in the comments below.