Buying a home is never a simple process. Buying a home when you're self-employed? That's another story entirely. Alicia Miller, co-owner of Carter Miller Hillcrest salon, recently took this journey and learned more than one lesson the hard way. Here, she shares the most important ones so you don't do the same. Take it away, Alicia.
1. Set yourself up to succeed.
If you aren’t great with bookkeeping and taxes, do yourself a giant favor and hire an accountant. Hiring an accountant has been the single most important thing we did when opening our business. Find a highly recommended (and qualified) accountant who you trust and who communicates with ease. Other than my lender, I spoke with my accountant more than anyone else during the mortgage lending process.
2. Employ yourself.
The borrowing process is significantly (and I mean significantly) harder when you are self-employed — even more so if you are single. I never imagined the importance and ease of borrowing with employed versus self-employed. Whether through your corporation or your own LLC, a W-2 will make the borrowing process so much easier.
3. Easy on the deductions.
If you decide not to employ yourself, know that during the borrowing process, your lender will use the last two years of your adjusted gross income, not just your gross income. I remember thinking "wait, what?!" Being self-employed gives you the ability to take abundantly more deductions (which is great on the tax side) until that doesn’t work in your favor (on the borrowing side). If you plan on purchasing a home, be conscious of what you are writing off and know that every single dollar you deduct is a dollar off your gross income.
4. Avoid a major loss.
During the two years prior to borrowing, keep your business books in order. If you are self-employed, your mortgage lender will take the entirety of your business loss and subtract that from your adjusted gross income. This was a critical lesson I learned the hard way. When I purchased my home, we were in our first two years of business at the salon, the two years of business you plan to most likely take a loss. For tax purposes, taking a loss is great; for purchasing a home, not so great.
5. Find a lender you trust.
Aside from my accountant, I spoke with my mortgage lender the most often. I would not have learned all of the above had she not patiently and delicately walked me through every ounce of information. Without a doubt, had my mortgage lender not worked as hard as I had to get my home financed, it absolutely would have never happened. (If you are in the Little Rock area, I highly recommend Megan Crist at Gateway Mortgage.) She worked for months to help me get my home financed, and I could not be more appreciative and grateful for her. Obviously, I could have made it a lot easier by employing myself first, but these are lessons I pass onto you.
Alicia Miller is the senior national master trainer for Italian-based hair care company Davines and co-owner of Carter Miller Hillcrest in Little Rock, as well as a native Arkansan who adopted Hillcrest as her home a decade ago. She was voted "Best Colorist in Little Rock" by Soirée readers, and in her spare time loves to travel the world, scuba dive and love on her three fur babies: 18-year-old cat Ava, 8-year-old dog Florence and 4-month-old kitten Naples.