Small Business Owner - Buying A Home

Small Business Owner – Buying A Home

Being a small business owner has its perks, and its drawbacks. As your friends are convinced you are living a dream, your reality could be far from it. The life and style of a small business owner usually evolves greatly over the life of their business. In the beginning it could mean less flexibility, but eventually it could mean more.

One of the things you need to consider as a small business owner is purchasing a home. Depending on the size and type of your business, the lending world views you NO DIFFERENTLY than they do a non-entrepreneur. This means they will look for a consistent salary or paycheck and will often average your last two years of earnings based on your W2.

WHAT?! – Buying A Home As A Small Business Owner

Yes, that’s right. You may run a business worth $1,000,000 or more for several years and your lender will still look for your personal taxable income.

One of the benefits of being a small business owner is minimizing your tax burden. Although you still pay for everything, you can often deduct legitimate expenses and save on common payroll taxes for yourself. An example would be paying your car payment of $350 directly from your business. If not, you would need to pay your self $450, pay $90 in federal, state, medicare and social security tax and then pay the $350 out of your personal income.

If you pay yourself a minimal income and pay legitimate expenses through your business, you will need to consider this. You may need to begin paying yourself a higher income. In this particular situation you will need to pay more taxes in order to qualify for the mortgage you are looking for.

This is why you may need to start your house hunting by asking one important question: “What do I need to pay myself to purchase the homes I am looking at?”

It is best to ask both your accountant, as well as a qualified mortgage lender what you need to do. Just keep in mind the value of your business isn’t what counts in this situation. The more prepared you are, the better.

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