Why Mortgages are Different for Business Owners vs. Employees

Did you know that the home loan qualification process is not the same for everyone? Requirements for business owners are different than those for individuals or couples employed by someone else. In this article, we’ll share some of the most important differences between buying a home as a business owner and a traditional W2 employee.


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W-2 Employees 

If you are the average full-time employee who fills out a W-2 form for your company, then the lender can use your gross income to qualify you for a home loan. Before you apply for a loan, you should be on your current job for a minimum of 30 days. After 30 days, your lender will be able to easily calculate your yearly gross income.  

In most cases, a W2 employee will need a two year work history, overall, to qualify for a loan. A lender can even count bonuses and overtime if you’ve been getting them for two years and they are reasonably likely to continue.

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If you are employed part time, you must have a two year history at the same employer to establish your income level.


Business Owner 

If you have an ownership stake of 25% or more in a business, you must include the income from that business, whether positive or negative, in your income calculation.  

Your lender will use net income instead of gross income in your loan qualification. However, a business owner can also make adjustments like depreciation.

Business owners should maximize their income by claiming all income, even cash business, when planning a home purchase. Writing off debt could have tax benefits, but could negatively impact a home loan application because it reduces your net income. Buying non-essential items like a boat or motorcycle could negatively affect your debt-to-income ratio and thus, your ability to qualify for the loan you want.  

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Are You Ready to Buy a New Home?

Planning ahead is important, because your business finances could impact your personal financial position. You first step should be to speak with your lender about your circumstances. A lender can’t give specific financial advice, but can coach you on what to consider while planning your home purchase. 

Lincoln Lending’s team (NMLS 398026) can talk with you about your personal and business plans and guide you through the process. We are glad to offer a no-cost, no-obligation coaching session to review your specific situation and the options available to you. To schedule a meeting, please call (405) 799-5363 or email us at Info@LincolnOK.com.


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