Can You Buy a House With Business Credit? | 2024 Loan Options

July 1, 2024 - 5 min read

Ever wondered if you can use your business credit to buy a home? It’s an intriguing idea, especially for entrepreneurs and business owners who want to maximize their financial leverage.

This article will explore whether business credit can help you purchase a home, detailing the pros and cons, and offering practical tips for navigating your options, including how your business credit can indirectly support your home buying journey.

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Can I use my business credit to buy a house?

Business credit measures a company’s ability to borrow and repay money. It reflects the financial stability of a business, similar to how a personal credit score reflects an individual’s creditworthiness.

So can you use your business credit to buy a house? Even though business credit is helpful for running and growing a company, it’s generally not used for buying a home — at least not directly.

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When it comes to residential purchases, mortgage lenders focus more on how well you manage your personal credit and income. But this doesn’t mean that business credit can’t indirectly help in the home buying process. For example:

  • Increases personal income: If your business is growing and you’re able to pay yourself a regular salary, you become a more attractive mortgage applicant.
  • Access to business loans and other lines of credit: You can use these funds for day-to-day expenses and unexpected costs, so you don’t have to use your personal savings. This helps you save more for a bigger down payment.
  • Separating finances: Using business credit keeps your business and personal finances separate, which is helpful when buying a home because it simplifies your financial situation and makes it easier to qualify for a mortgage.

Mortgage loan options for business owners

Entrepreneurs have different mortgage loan options, from FHA and conventional loans to special loans.

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Conventional loans

Conventional loans, which aren’t backed by the government, usually require a good personal credit score and steady income.

As a business owner or freelancer, you’ll provide complete tax returns from the last two years to show that your income is consistent and steady (since you don’t have a W-2 like employees).

Conventional loans are great for self-employed individuals with documented income because they have competitive interest rates and flexible terms. But they do have higher requirements, usually at least 5% down and a credit score of 620.

FHA loans

FHA loans, on the other hand, are backed by the government and might work if you have a lower credit score or a smaller down payment.

You generally need a credit score of 580 and at least a 3.5% down payment. You must also show stable income through tax returns and other business documents (ex. year-to-date Profit and Loss Statement).

Self-employed loans and stated income loans

Self-employed loans are for business owners and freelancers with complicated incomes. In other words, they might not receive regular or consistent paychecks, but they’re financially stable.

One type of self-employed loan is a stated income loan. This allows you to state your income without providing traditional proof. In which case, approval is largely based on your bank statements and credit score.

These are for business owners with variable or hard-to-prove incomes. But although lenders are more lenient with regard to income verification, these loans have higher rates and you’ll need a strong credit score and a bigger down payment.

Alternative ways to leverage business credit for a down payment on a house

When securing a home loan, it’s not just about qualifying for the mortgage payment. You’ll also need a down payment, which is a lump sum paid upfront.

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A down payment is a percentage of the total home purchase price and is often required by mortgage lenders to reduce their risk. It’s one of the biggest obstacles to buying a home, but self-employed individuals can leverage their business credit to get cash for their down payment.

  • Business line of credit: This is a revolving credit account that allows you to borrow funds up to a certain limit on an as-needed basis, which you’ll pay back over time like a credit card. This can cover short-term expenses like a down payment.
  • Business credit card: These are like personal credit cards, but they’re in your business name. Some cards earn rewards or cash back, which can add up over time and help with your down payment.
  • Small Business Administration (SBA) loans: These loans, supported by the SBA, offer small business owners funding for working capital, equipment, and real estate. While SBA loans cannot be used for personal expenses such as home purchases, they reduce the need to dip into personal savings, making it easier to save for a down payment.

Is it better to buy a house with my own credit?

Buying a house with business credit is typically for investors or those purchasing properties for rental or commercial purposes, whereas buying a house with personal credit is more common.

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Some lenders are more comfortable lending to individuals for home purchases because it’s a less risky scenario for them. Additionally, using your own credit can open the door to more financing options and result in a simpler approval process.

Investment properties such as rental homes, multi-family units, or commercial buildings are often bought with business credit — since these properties generate income. Even so, getting financing involves meeting stricter requirements, such as having higher credit scores, making larger down payments, and providing additional business financial documents.

The bottom line: Using business credit to buy a home

While it’s possible to use business credit for a home, it’s usually easier to use personal credit. However, you might consider using business credit when buying a rental or commercial property.

In the end, self-employed individuals, freelancers, entrepreneurs, and business owners should carefully weigh their options before making a decision.

Speak with a mortgage professional who can provide advice based on your financial situation and goals.

Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).