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Generally speaking, it can be agreed that running your own business can feel like the ultimate win. You’ve built something from scratch, you’ve taken risks, and you’re making it work. So now that your income is fairly stable, maybe it’s time to stop renting and instead move to a new property that you own. Honestly, that sounds like a dream come true, right?

Well, unfortunately, that’s when reality hits. What should be a moment of pride and celebration often turns into a mountain of challenges. The hard truth is that buying a house as a small business owner can be a lot harder than it is for someone with a regular paycheck. Even if your business is thriving, lenders tend to see your income as unpredictable and risky.

 Add in extra paperwork, tax write-offs that work against you, and a whole lot of hoops to jump through, and suddenly, homeownership feels frustratingly out of reach. But why is it so difficult, and what can you do to get around these roadblocks? There are some business owners living in lavish homes, how can you at least get something modest? Well, it’s not entirely impossible.

Why Don’t Lenders Trust Small Business Income?

For traditional employees, proving income is a breeze. All they need is a few pay stubs and maybe a letter from their boss. It’s straightforward and predictable, exactly what lenders love. You could literally be the boss and pay your employees, and they’ll be the ones actually having it easier off with getting a house!

But why? Well, small business owners, on the other hand, are a different story. Your income doesn’t come with the same neat, tidy numbers. For the most part, business income can go up and down depending on the season, market trends, or even something as simple as a delayed payment from a client. So, lenders see this inconsistency and immediately label it as risky.

Now, this might be a massive surprise, but even if your business has been thriving for years, lenders still tend to worry. They want to know, “What happens if sales slow down? What happens if the market changes?” So, for them, it’s all about playing it safe, and small business income doesn’t feel safe to them, even if it’s more stable than they think.

There’s Just Too Much Paperwork

If you’re a small business owner, you already know the paperwork never ends. After all, it’s all about running a business that comes with invoices, taxes, and financial statements galore. But when it’s time to apply for a mortgage, the paperwork somehow gets worse. No, really, it just has a way of being so much worse!

While traditional employees can provide a couple of forms to show their income, small business owners are often asked for tax returns, profit-and-loss statements, and years of financial history. And even then, lenders might want more. They’ll ask for bank statements, proof of future contracts, or details about your biggest clients. 

It can feel like lenders are picking apart every detail of your financial life just to decide if you’re “safe” enough to give a loan. It feels so invasive, right?

There’s the Pressure to Prove Stability

Yes, stability is everything. It’s super understandable that lenders want to know that you can consistently pay your mortgage, no matter what. It’s not exactly the easiest on your end to show you’re stable, right? 

Unlike employees with a steady paycheck, entrepreneurs often have to deal with fluctuating income. Even a slight dip in sales or a slower season can make lenders nervous. It’s not that you’re not stable, it’s just that your version of stability doesn’t fit the traditional mold lenders are used to.

How to Make It Work

Alright, now, it sounds next to impossible for anything to work out nicely if it’s going to have to go like this, right? Well, buying a house as a small business owner isn’t impossible. It just takes more preparation, and knowing where to look for the right help. Sadly, most business owners don’t even know where to look. It’s not like it’s nicely advertised or anything like that. For example, in cases like this, it’s definitely going to be worth looking into alternative non-QM loans for unique income structures.

These types of loans are specifically designed for people like small business owners who don’t fit the standard criteria. Instead of relying on traditional documents like W-2s, they look at bank statements, assets, or other income sources to assess eligibility. 

For a lot of business owners, this is the option that they go for. Of course, you could always still do the traditional route, but you’re going to have to get at least two to three years' worth of tax returns and ideally avoid tax deductibles since those can hurt your chances of getting a loan.