Applying for a mortgage can be a nerve-wracking process for a small business owner and it may seem that you will always be at least one document away from your goal. To save yourself time and effort, you need to look at the situation from the point of view of a lender. Additionally, you can use an advanced mortgage calculator to get an actual idea of your monthly installments of mortgage, even this mortgage payment calculator helps to calculate the down payment of your mortgage – what makes any business eligible for a mortgage?
By simplifying the answer to this complex question, what’s crucial for any lender is to be given a low-risk opportunity and they will oblige with approval. For those who need help in this field, here are a few pieces of advice on how to get a mortgage with a favorable interest rate.
Inform yourself well
Obtaining a mortgage can be a complex procedure but the great amount of the stress that surrounds this undertaking stems from being unprepared. A lot of inexperienced small business owners don’t dedicate enough time to covering all the grounds and then they get genuinely surprised when the application gets refused. This is why it is essential to do thorough research on all the necessary details.
Besides that, consulting an experienced mortgage broker prior to applying can give you an invaluable insight into the decision-making process. This means that you would be able to set some things right from the beginning, as well as adjust what needs to be in advance.
Prepare documentation in advance
To get a mortgage, you would need to provide the lender with two years’ worth of detailed documentation about your small business finances. This copious amount of paperwork is necessary since the lenders need to know who they are lending to and because from the financial aspect, that amount of money is considered hefty.
For the sake of comparison, taking out no security business loans requires much less paperwork while the approval is decided in 24hours. However, the amounts borrowed may be less than a traditional loan so you need to be realistic about your financial needs.
Keep debt-to-income ratio low
One of the points of interest for any lender is your small business’ debt-to-income (DTI) ratio. You can calculate it by dividing the sum of your debt payments with your business’ gross monthly income and multiplying the result with 100 to get a percentage.
Naturally, no one wants to lend anything to a business that has more debt than profit but again, the business world is notorious for its fluctuation. This means that what you need to do is to always strive to show either consistency or growth. You would probably achieve growth easier than consistency but any of the two can be a game-changer for your mortgage application.
Maintain your tax status
Since you need to prepare two years of consistent income history, any change in the two years prior to applying for a mortgage might result in a decline of your small business mortgage application. As your small business develops, you might change things along the way or you might have gone from an employee to sub-contractor.
Chances are you won’t be planning to take out a mortgage two years in advance but it is useful to know these pieces of information when you become independent in business terms. Changing your tax status can be problematic because you need to prove stability in the previous period but in case such transformations happened, you need to concentrate on showing growth.
Persistence is one of the key characteristics you will need while on your way of obtaining a mortgage. When you take all into consideration, preparing for a mortgage application two years in advance might be a good option, if you can afford it, of course.
Any significant fluctuations in your income, overall debt or tax status can result in a refusal of your application so it seems sensible to find a reliable accountant and together build a stable financial history for the next two years. However, if you need money for your property right away, make sure to prepare all documentation in advance so as not to waste time and ensure a favorable interest rate.
I’m Willy Beamen, contributor for Bizzmarkblog with 15 years of experience from Sydney, Australia. My work is mostly focused on helping small business owners and local startups to get off the ground and expand.