Owning your own business comes with a lot of perks – you can set your own hours and call all the shots. But there are also some downfalls you need to know about before going out alone. Here are just a few of the pros and cons of being self-employed.
You Work For Yourself
Are you tired of working hard to put money in someone else’s pocket or not being heard or promoted? When you’re self-employed, everything that you do puts money back into your own pocket and impacts your own bottom line – not a corporation or the boss above you. You don’t have to worry about getting promoted to increase your salary, about layoffs or corporate downsizing, and you also get to make decisions about how your company operates – in short, you’re in control of your own success, not someone else’s.
There are also plenty of things you can deduct that will reduce your net income and lower your taxes. Some of the potential deductions include computers and office equipment, auto expenses, travel expenses, food and professional fees that are related to the business.
You Have To Save For Your Retirement On Your Own
Many corporations have their pension programs where they will match your retirement contributions per dollar. When you run your own business, you have to plan and save on your own. However, this isn’t always a bad thing. Companies often invest in pension plans that fluctuate with the market, so if they make bad investments, it impacts the benefits you could receive in retirement. In fact, you could pay more into it than what you get out of it. Also, you don’t get a say with how your money is being invested or allocated. When you invest yourself, you get to make all the decisions on how your money is invested, which can benefit you if you make the right choices and hire the right people.
It Can Be Harder To Get A Mortgage
Some self-employed earners can have a tough time getting a mortgage from a traditional institutional lender. Why? Because these lenders will qualify you on your actual claimed income (line 150 on your tax returns) averaged over the past two years. They will not consider your gross business income, which can be a problem for many self-employed people who write off significant expense deductions. Lenders do this to help offset the risk in case your business has a bad year or closes down completely. They want to ensure that you can afford the monthly mortgage payments regardless of the circumstances.
Fortunately, there is some good news. Although it can be a bit more challenging to secure a mortgage when you’re self-employed, it’s not entirely impossible.
Business for self clients can income qualify for traditional mortgages with a good credit score, minimum of 5% down, solid financials, and pass the stress test.
With 10% down payment, we have business for self programs designed for those who are unable to provide traditional income verificaiotn but have a 2 year history of managing credit and finances responsibly. Under these programs borrowers are required to declare their annual income and annual business revenue, which should be reasonable based on the the industry, length of operation and type of business.
With 20% down there are many more options and alternative lenders that specialize in mortgages for the self employed. These type of mortgages may be a little more expensive but allows you to continue to save on income taxes, or these could be short term solutions until you have the required 2 year income history to move back to a traditional mortgage.
Talk to a trusted mortgage advisor to help you determine if you qualify.
If you’re self-employed and looking to purchase a home, contact us at The Mortgage Advisors. We’ll help guide you through the mortgage process and outline all the options available for you based on your income and financial situation. For a free consultation, contact us today.