Ryan Dean estimates half of the mortgage loans he handles at The First National Bank in Sioux Falls involve a business owner.
Sometimes, it’s income from a side business a home owner is using to make the mortgage payment.
Other times, an entrepreneur relies solely on the business for income.
And, in the case of David and Allison Jones, both were self-employed when they came to First National for a home loan a few years ago.
They had moved back to South Dakota from Indiana to start Jones Family Eyecare in Brandon and purchased their home about one year later.
“We didn’t know if we would even qualify, because we had only been working for a year and were self-employed. We had pretty low expectations of getting any financing,” Allison said.
“We had to provide more background and documents, but after we gave them all the paperwork they approved us. They made it a nice, easy process and were fabulous in allowing us to get a home faster than we thought we would.”
It’s a good example of how the bank’s expertise allows it to find lending solutions for small business owners, Dean said.
“The mortgage itself is not that unique, but the secondary housing market likes consistency and a steady financial picture. The nature of a small business owner is that you can have ups and downs in the business cycle,” he said. “Just because you have a bad year doesn’t mean you’re not a good credit risk or can’t afford the mortgage. There are things that happen beyond your control.”
The First National Bank is able to take those things into consideration when working with home buyers.
“We do both in-house and sell some loans for secondary market financing,” Dean explained. “That gives us some additional flexibility in working with small business owners, especially if you have year-to-year change in your business.”
The key is to look at how the home purchase will impact the owner’s position in the business, he said.
“Is your business in a position that you can do this appropriately right now, and what’s in store for your life in five, six, or 10 years down the road? What challenges or milestones are you going to reach? We want to understand your goals and what you want to accomplish for your business and for yourself personally. Based on that information, we recommend a mortgage structure that fits your situation. A standard 30 year mortgage offers the lowest payment, but is it really the best option at that time?
Here are some other common questions business owners bring to the bank about their mortgages.
If I just started a business, will it be harder to get a mortgage?
Answer: Possibly not. If you’re a brand-new business, you can still get into home financing. We’ll assess if you’re buying a home that’s reasonable for you and look at your financial situation. Sometimes at the start of a business, you’ll determine it is the time to stay steady and not make major investments, especially if your cash flow is going to be important.
Should I be prepared to bring a lot of extra information about my finances?
Answer: One of the big complaints I hear from small business owners is they get asked for something, they provide it, and then they get asked for something else and submit that, and sometimes that can’t be helped. Our approach is to communicate with our customers often so they know what is expected. At the appropriate time, we go over what financial information is needed and even provide a checklist on our website in order to keep additional requests to a minimum.
What duration should I consider for my mortgage, and what are you hearing about rates?
Answer: We’re big proponents of mortgages that are 20 years or less. They say rates will continue to moderately increase, to about 5 percent or slightly above for a 30 year mortgage. In historical terms that is still a very good rate. If rates get above 5 percent I do feel that home affordability starts to become an issue for the Sioux Falls market based on the price increases we have seen in the market.
And here’s something business owners often overlook: Their home equity could possibly be used as a tool to help grow their business. “Not as many small business owners realize this is an option, but they should be having those discussions with their CPAs or tax advisors,” Dean said.
While the Jones family is happily settled for now, David and Allison did buy land last year with financing from First National and plan to eventually build their next home on it.
“It was again a fabulous experience,” Allison said. “We’ve recommended a ton of people, especially anyone else who has their own business, to First National.”
To begin a conversation about your next home loan, contact the mortgage team at (605) 782-5710.
Equal Housing Lender