We are just around the corner from the beginning of a new year. Another year of resolutions, goal setting and business planning. Is homeownership on your list as an entrepreneur? If, not, here are several reasons why it should be:
- Homeownership builds wealth – As an entrepreneur numbers talk. So here are some numbers for you. 90% of millionaires when surveyed stated that they made their wealth through buy and sell of Real Estate. That’s a large percentage of wealth generators. I don’t know about you, but when someone tells me what works well for them, I’m looking further into it.
- Tax Deductions – As entrepreneurs, we scramble at the end of the year to make sure we use all of our business expenses to reduce our taxable income. Well, as a homeowner you are able to deduct your property taxes and mortgage interest off your home once a year. You can’t deduct any portion of your monthly rental payment that goes directly to your landlord.
- Capital Gains Exclusion – If you live in your primary residence for more than 2 years, you can keep profits up to $250,000 if single or $500,000 if you are married without owing capital gain taxes on your home.
- Buying is Cheaper than Renting – In most markets across the country, especially here in Illinois for many of my clients, it’s cheaper to buy than to rent a home. For example, here in Chicago a home with modest taxes and $250,000 in price would cost on average $1800 in a monthly mortgage but the same home can cost upward of $2500 per month just to rent.
The most frequently asked question I receive from business owners on homeownership is about qualifications. How do I qualify to for homeownership? The credit score qualifications are the same as a traditional buyer. However, with the business owner lenders want to see income consistency for 2 years or more. Here is what the lender will require of you at the time of application:
- Credit Report – You can qualify for an FHA loan with a minimum credit score of 580. Of course the higher your credit score, the lower your interest rate. The lender will run their own inquiry into your credit report and will not accept the one you generate yourself. If you want to see what is on your credit report for free, go to Annual Credit Report to obtain your copy. Per government regulations, you are allowed one credit report per year from each credit bureau.
- 2-3 Months of Bank Statement – The lender needs to see that you make regular deposits into your account and that available funds are accounted for. If you are a business owner with cash in a safe, the lender will not use these funds. All available funds in your account must be accounted for. You thank the market crash of 2008 for these extra precautions.
- 2 years of Tax returns – The lender wants to see stable income from your business for at least 2 years. This gives them a sense of what kind of income the following year will generate.
- Business Articles – Business articles issued by the state showing that you are the owner of your business.
- Year-to-date Profit and loss statement – This statement includes net sales, the cost of goods sold, gross margin income, operating expenses and net profits.
- Security accounts – (stocks, bonds, life insurance)
So if you were thinking about homeownership as an Entrepreneur, go for it. Do your research and create a plan.
