Simultaneous mortgage and business loan applications seem like hiking up a steep mountain. There are a lot of variables and risks to look out for if you want a successful response to your applications.
Aside from the numerous risks you may face, applying for a business loan and a mortgage can complicate your overall credit compared, to deciding to take things slow and apply for each loan separately.
While the thought of taking out two massive loans at the same time sounds scary, it shouldn’t put you off in any way. In fact, this is a common move among many people. What you need to do is tread with caution. You need to have a solid plan detailing how you intend to acquire and repay both loans.
This article contains surefire tips for helping you if you decide to apply for both loans at the same time.
01. Understand What Mortgages Are
The 2008 financial crisis took lenders by surprise, and this led them to rethink their guaranteed loans for bad credit application process. In fact, after the losses caused by the crisis, lenders introduced stringent requirements for borrowers wishing to take out mortgages.
Beginning when you start shopping for a home, the lender will first have to prequalify you for the loan amount. This step is important for both lender and borrower because it allows you to know whether you can afford the home. This will, in turn, protect the lender from defaults. However, note that the lender will make a credit inquiry prior to closing. This is because they want to ensure your credit is still the same as when they prequalified you.
This may be damaging because on one hand, you’re applying for a business loan and on the other hand, applying for a mortgage. Both require credit pulls, and while a single pull may not harm your score, multiple inquiries within a short duration will be detrimental. As a result, the lender may impose difficult terms on your mortgage such as a high-interest rate or even demand a larger down payment.
02. Keep an Eye on Credit Inquiries
There are two types of credit inquiries: A hard and soft inquiry. You want to keep a close eye on the former. Similar to banks, other lenders will perform a hard pull on your credit. Hard pulls may slash some points off your credit score, but multiple pulls will have a substantive negative effect on the score. Therefore, as you shop for either loan, make sure you keep the hard checks at a minimum; otherwise, your score will suffer.
03. Maintain Old Credit Card Accounts
For starters, lenders will want to evaluate your credit history. You see, lenders will want to know whether you have any experience managing credit card accounts. This history is what they’ll rely on when assessing your eligibility.
If it’s long enough and satisfactory, they may offer lenient terms. However, if it’s short, or worse yet, nothing at all, chances are the lender may turn down your application. This is why it’s vital to maintain your old credit card accounts. While at it, don’t forget to pay off any outstanding balances. Doing so will show the lender how responsible you are with credit. In addition, it’ll also lower your debt-to-credit ratio.
04. Consider Other Alternatives
Whether you’re dealing with traditional lenders or other types, you’ll still have to undergo a hard credit inquiry when you apply for a business loan. Again, this will hurt your score and will lead the mortgage lender to impose difficult terms that may dim your financial future.
However, not all hope is lost. There are other sources of business funding that don’t require credit inquiries. The following are the most common:
- Merchant cash advances – This type of loan allows you to receive a fast cash advance. In return, you’ll grant the lender a certain stake of your daily proceeds. The best part about this method is you don’t need to worry about credit pulls.
- Invoice financing – Instead of putting up your equipment or property as collateral, invoice financing allows you to use unpaid invoices as the security for the loan you intend to take out. Often, the lender will extend up to 85% of the invoices’ value.
05. Spot Errors in Your Credit Report
It’s common for credit reports to contain incorrect entries, which is why it’s important for you to put the report under a magnifying glass with the sole purpose of locating errors. Did you know that up to 25 percent of credit reports contain errors? Well, now you do. Therefore, request a report from all three credit bureaus. Note that you are entitled to at least one free report from all bureaus, so make good use of them.
06. Time Your Applications
If you’re hunting for both a business loan and a mortgage, the best move would be to start with a mortgage. As you do that, find temporary fixes to fill the gap in business financing. For instance, cut down on expenses, expectations, and timelines. By doing this, your business pursuits won’t be harmed because of your mortgage.
Going for both a business loan and a mortgage requires a lot of discipline, to say the least. For this reason, it’s vital to think through this move before settling on a final decision. In addition, once you’ve decided to take out both loans, you must have a solid plan in place. This plan will not only include how you intend to repay both loans but also how you’ll qualify for both. As you’ve seen from the tips discussed in this article, various factors may harm the simultaneous action.
The decision is yours to make, but whatever you decide, it’s important to do it correctly for both loans. Either way, with an informed plan and discipline to execute it, chances are you’ll emerge victorious and wiser. Good luck!