I did a big thing last fall. I bought a house. It’s still to this day one of the most rewarding (and also the most stressful) things I’ve ever done. I knew I was fully DONE AND OVER apartment living, and knew that buying a house was the right step forward. I’ll admit, I watch a lot of HGTV and wanted my own house to tackle and renovate and make the way I wanted it. But I didn’t know one single thing about buying a house and I had no idea what I was in for, especially as a business owner. It’s a WHOLE different ball game.
Here are my top 5 tips for small business owners looking to buy their first home (and again, I am no financial expert, please do not take this as expert advice!)
Keep good records (and for the love of god stop using Venmo).
If you’re using Venmo or Cashapp to take payments so that you can make money under the table, stop. The amount of money the bank is willing to give you will largely depend on how much recorded income you have, so if you’re not claiming large sums of money, you’re only hurting yourself.
Get a CPA.
I cannot stress this one enough!! You NEED to make sure your finances are in order. Can you imagine how embarrasing (and scary) it would be to explain to a mortgage lender that you fudged your taxes, or that you “forgot” to claim some of your income?
Reduce your MONTHLY debt.
I thought mortgage lenders would look at your total amount of debt (and they do) but what they REALLY care about is how much of your MONTHLY income goes towards paying debt (it’s called your debt to income ratio).
Take a first time homebuyers course.
I learned SO MUCH about the homebuying process from the course I took, and I often referred back to my notes once I actually started the process myself. The biggest takeaway was learning how much grant money is available to first time homebuyers. These are usually offered by local housing groups – so do a google search and see what’s available in your area. The one I took was from a local Western New York chapter of Belmont Housing.
Prepare for stress.
From the time I made the offer to the house to the time I signed the closing papers (almost three months exactly) was one of the most depressing periods I’ve ever gone through. I didn’t know for sure that I was going to get the loan until a week or two before closing. Not knowing what your future is going to look like is HARD. Worrying that you’ve but so much hope and planning into something that might not work out is HARD. Waking up every morning feeling this is HARD. Be prepared for tears. You might even want to adjust your workload to be lighter during these few months. But trust me, it’s all worth it.
There’s a number of things the bank asked me for…some that I expected, some that really surprised me!
Things I expected to be asked to provide:
-Tax returns for the past two years (I actually expected more)
Things I did not expect to be asked to provide:
-A signed letter from my CPA detailing how long we have worked together and verifying that my reported income was correct
-A copy of my business license
-Pay stubs (that’s not how I pay myself so this was really annoying to work through!)
-Affadavit verifying my current residence and income
-Letter of explanation for any large deposits in my checking accounts for 6 months leading up to the sale
-Letter of explanation for any recent credit inquiries (even for mortgages)
-If you’re willing put down more money upfront you can essentially “pay” for points that give you a lower interest rate
So much of what they ask you for will seem redundant and unnecessary. Just go with it! As I said before, the process is long and stressful and overwhelming, but it’s SO WORTH IT. If you prepare yourself properly things will go a lot smoother. It would also be helpful to have some friends who have gone through this recently to support you. My realtor was experienced and friendly and had just purchased her first home about a month before I did, so our most frequently sent text between us was “I have to laugh because if I don’t laugh, I’ll cry.” SHE GETS ME! But really. Hang in there. I’m cheering you on.
Want more info? Here’s a helpful article, “The First-Time Homeowner’s Guide to Affordable Home Ownership.“