Mortgage for the Small Business Owner
As a small business owner, if you’ve tried to get a house, you’ve probably run into some frustrating issues. It’s never a positive thing to find out that you have to be earning your paycheck from your company for a full two years before it can contribute to qualifying you for a home loan. You’re also probably in a position where you’re paying yourself as little as you can get away with so you can keep putting money back into your company. Depending on when you started your business, you may already have a family you’re trying to support and a house you’re trying to keep. In your situation, the most important thing is going to be getting the lowest monthly payment you can – even at the expense of paying more interest in the long run if necessary. Allow me to elaborate.
Why the Low Monthly Payment
If your business has survived long enough for you to be able to use your income from it to qualify for a home loan, you have a good chance of continuing to grow your business and become more successful as time goes on. However, you’re probably not paying yourself copious amounts of money at the moment; your paychecks are probably as small as you can afford them to be, which is why getting a low monthly payment right now is extremely important for you. This can be motivation to choose a 30-year fixed mortgage instead of a 15-year. A 30-year fixed may not be great, but it’s still better than renting, it will be easier for you to qualify for because of the lower monthly payment, and you can be slowly growing equity in your home.
But What About the Extra Interest?
Any home is generally better than no home at all. Your business is possibly still at a stage where a couple of bad months could shoot you down. Even if it’s more established when you’re having cash flow problems, one of the first things that are going to get cut down is your salary. That’s part of the price you pay for starting your own business. Is it a major shame if you end up paying tens (or hundreds) of thousands of dollars more in interest over the life of the loan? Of course. But is it better to get the process of buying a home started under less-than-ideal circumstances than not at all? Of course. Plus, you can refinance in a few years as soon as you’re ready to do so. Buying a house is an important step in building your wealth, and it’s worth choosing a 30-year fixed if you have to do it.
You May be Able to Have Your Cake and Eat it Too
A way that you can get both a very low monthly payment and pay less in interest over time is by using the VA’s hybrid ARM loan. The VA hybrid ARM loan gets you an extremely low-interest rate for an initial fixed period, and it has a very controlled way of adjusting after the initial fixed period. The rate can only adjust once per year and it can’t rise more than 1% with each adjustment. Give us a call or read some more of our articles to learn if the VA hybrid ARM is a good solution for you. As a small business owner myself, I am keeping an eye on interest rates to refinance to an ARM for my home.
So, the biggest thing to keep in mind for you as a small business owner is to keep your eye on the lowest monthly payment in the present. Three or five years down the road your business should be ahead of where it’s at now, so you can always refinance a few years down the road to something else if you have to select a loan now that you don’t necessarily want to keep long term. Your business is your best chance at financial freedom, and being able to pay off your home is one of the things that will make you more free. Get started paying off your house now, and don’t be afraid of refinancing when you can afford a higher monthly payment to pay your home off faster.