How Early-Stage Entrepreneurs Can Navigate the Mortgage Market

by / ⠀Entrepreneurship Startup Advice / May 30, 2023
mortgage market

The Oxford Dictionary defines an entrepreneur as someone who operates a business while taking on a certain degree of financial risk in the process. Opening a business takes financial savvy and if you plan to open a brick-and-mortar store or location out of which you operate your business, understanding the mortgage market is a vital step in the process. The same is true if you don’t have traditional finances and want to buy a home as an entrepreneur. Use this handy article to help you figure out everything you need to know.

What is the Mortgage Market?

Before we go any further, it’s a good idea to familiarize yourself with what the mortgage market is. It’s essentially a financial structure that ensures some funds allow lenders to lend to buyers. From a business perspective, a mortgage is any amount of money offered to purchase land or some type of building that is used to operate the business. From a personal perspective, it’s the ability to secure a loan to buy a house.

The primary mortgage market is the portion that buyers interact with. This is the market in which you obtain a loan. The secondary mortgage market is where lenders find the money to continue having funds to offer. This is usually done with mortgage-backed securities that allow lenders to collect principal and interest on the mortgage loans they provide. They are guaranteed by mortgage investors. This ensures that the lender gets their money back for the mortgages they offer, even in cases of default.

Why Entrepreneurs May Find it Difficult to Get a Mortgage

As of 2020, more than 42 million people in the United States were self-employed, with the number continuing to grow in subsequent years. Despite that, many entrepreneurs struggle to get a mortgage, both for their business and their own personal home.

See also  When to Say No: Not All Client Partnerships are a Match Made in Heaven

Unfortunately, the mortgage market has not kept up with the growth in self-employment. The number of lenders comfortable taking a risk on small businesses or self-employed business owners, are few and far between.

Without traditional finances to back them, most lenders find themselves leery of offering a loan to those potentially not paying it back. In many cases, this forces entrepreneurs to choose between starting their business or buying a home of their own.

Buying a home is a good way to grow wealth, which is important for entrepreneurs. Being locked out of the mortgage market because they don’t make money in a traditional sense can get in the way of finding a reputable lender. There’s a common misconception that self-employed people can’t prove their income. Additionally, a misconception is they don’t always have a steady source of income.

While this isn’t true, it can keep lenders from being willing to loan entrepreneurs. This is especially true for those in the early stages of business ownership. They need the money needed to purchase a property, for business use or otherwise.

What Can an Entrepreneur Do?

There is a variety of ways that entrepreneurs can navigate the mortgage market and find the funds needed to buy a property. One of the most important things you can do is determine what you can afford as a monthly payment. This allows you to look at only properties that fit within your budget, saving you time and heartache. A mortgage calculator, like the one at What’s My Payment, will come in handy in helping you determine what you can realistically afford to pay on a monthly mortgage.

See also  Do You Have a LOFA Problem? (Lack of F*cking Adventure)

Another way to approach the mortgage market is to contact lenders. They can provide options outside your budget, allowing you to find the best mortgage for your needs. Additionally, mortgage lenders can advise on current interest rates and guide your loan structure. Lastly, they are a great source of information if you want to refinance your existing mortgage

Even if you’re fairly new to the entrepreneur game, one of the best things you can do for yourself is to keep meticulous records of all business dealings. Be sure to keep track of income. This can be done with bank statements that prove consistent deposits. But, they need to keep track of your wage through your business finances.

Keeping Track of Tax Information

You should also keep all of your tax records together in an easily accessible location. Many lenders will also ask for profit and loss statements as a record of a steady income. Keep in mind that some lenders will want to see at least two years of finances. So, you have to operate your business for a short time before applying for a mortgage.

You also need to pay attention to tax deductions. These can be beneficial for some small business owners, but your taxable income is what’s used to qualify for a mortgage. So if you write off a large part of your income on your taxes, it can be difficult to find a mortgage lender willing to back you. Go ahead and take advantage of tax deductions, but at the same time, make sure your taxable income is at an amount that makes sense for applying for a mortgage.

See also  8 Workers’ Comp Facts Employers Need to Know

It’s also a good idea to find a lender that is experienced and willing to work with applicants who don’t traditionally make their income. There are a variety of lenders who specialize in such special circumstances and you are much more likely to qualify for a mortgage if you find one who understands your entrepreneurship and can help you navigate the mortgage market accordingly.

Final Thoughts

As an entrepreneur, you shouldn’t attempt to navigate the mortgage market on your own. It can be a tricky industry that changes all the time. Having a professional expert on your side makes all the difference. There’s no reason to resign yourself to owning a business or owning a home, but not both. With some time and effort, you should be able to find the lender you need to get you into the home of your dreams, all while also operating the business you’ve always dreamed of.

About The Author

Editorial Team

Get Funded Faster!

Proven Pitch Deck

Signup for our newsletter to get access to our proven pitch deck template.