The views in this article are those of the author and may not reflect the opinions of Quicken Loans and its team members.
As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.
Looking for a business loan and a mortgage at the same time is a lot like doubling down at the poker table. Lots of action and twice the risk can bring excitement and forward movement.
Taking two loans isn’t exactly the same kind of gamble, but there are still plenty of factors to consider. Shopping for both a mortgage and a business loan at the same time can make your credit picture a little more complex than if you decided to pace yourself or had the freedom to search out each loan separately.
But that doesn’t mean you shouldn’t do it. Growing or starting a business and moving into a new home at the same time isn’t unheard of; it’s just a lot of action that needs to be managed with care. Follow these quick tips if you have no choice but to go “all in” on both a mortgage loan and a business loan at once.
Beware of Racking Up Hard Pulls
First, know this: traditional lenders like banks or other mortgage lenders perform what is called a “hard pull” on your credit score. Hard pulls can ding your credit score by a few points, but numerous hard pulls could possibly impact your credit score substantially.
As you check into your options, be aware that the number of applications you submit may increase the impact on your credit score.
School Yourself on Mortgages
Most mortgage lenders have strict credit criteria when they consider making a long-term investment in a borrower. After integrating lessons learned from the 2008 financial crisis, lenders have made today’s screening practices more stringent than ever.
Follow best practices by getting preapproved for a home loan before you start shopping. This will enable you to understand how much house you can afford.
Keep in mind that lenders will often pull your credit a second time just before closing to ensure that you have the same good credit you had during the prequalification phase. If you are simultaneously applying for business loans, these multiple checks could bring down your credit score for your mortgage by the time of the final check. This means that your mortgage lender may offer you lesser terms, such as charging a higher interest rate or requiring a larger down payment.
Compare Alternative Business Loan Structures
Like your mortgage lender, your business lender will also do a hard pull on your credit when you apply for a business loan from a traditional bank. This can trigger your mortgage lender to offer lesser terms, impacting your personal financial picture for years to come.
But there’s good news. There are several alternative types of business lending that typically don’t require a credit pull. These are two of the most popular:
- Invoice financing: With this option, lenders give you a cash advance of around 85% of the value of your outstanding invoices. They pay the 15% to you later, minus fees, after the client has paid up. Many invoice financing companies do not require a credit pull.
- Merchant cash advances: A lender will give you a fast cash advance in exchange for a portion of your business’s daily credit card proceeds. Some merchant cash advance companies do not require a credit pull.
Pay Off Your Credit Cards, but Keep the Accounts Open
While it may seem counterintuitive, closing old accounts could make your credit history look shorter, which could affect your score unfavorably. So, we advise you to pay off your credit cards and keep your accounts open after you’ve done so. This will enable you to show a longer credit history and a lower debt-to-credit ratio.
Keep an Eye on Mistakes
Pull your credit report from all three of the major credit bureaus and study it meticulously. Are there any errors? An estimated 25% of credit reports contain mistakes, so make sure your score isn’t suffering due to someone else’s error.
Rethink Your Timing
You may be better off if you close on your mortgage first and then seek out a business loan. In the meantime, you may able to find temporary alternatives to a business loan, such as adjusting your timeline, expenses or expectations. By approaching it this way, your mortgage rates won’t be affected by your business interests and pursuits.
Embarking on a dual-action plan of both a mortgage and a business loan isn’t for the faint-hearted. Consider these tips and do what’s best for you. No matter what you decide, exciting times are ahead – and you’ll feel more confident having an informed plan!
Meredith Wood is Editor-in-Chief and VP of Marketing at Fundera, a marketplace for small business financial solutions. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
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