Self-Employed Mortgages: Stated Income

Stated income mortgages, also known as "no-doc" or "low-doc" loans, are designed for borrowers who may have difficulty providing traditional documentation of their income. These mortgages are particularly popular among self-employed individuals, freelancers, contractors, and business owners who may have fluctuating income or non-traditional sources of revenue. With stated income mortgages, borrowers can declare their earnings without the need for extensive paperwork, making them an attractive option for those with non-traditional income streams.

Key Points to Consider:

Down Payment: Stated income mortgages offer flexibility in securing financing, typically requiring a minimum down payment of 10%. However, to avoid mortgage default insurance premiums, a larger down payment of 35% or more may be necessary. For insured stated income mortgages, borrowers can make a down payment as low as 10%, but will need to pay insurance premiums. These options provide borrowers with choices depending on their financial situation and preferences

Lender Options: Stated income mortgages are most commonly offered by B or Private Lenders, although some A Lenders may accept this verification method through programs like the Sagen Alt-A Program. It's important for borrowers to explore their options and understand the lender requirements associated with stated income mortgages.

Credit Score Requirements: Due to the higher risk associated with stated income mortgages, lenders may impose stricter credit score requirements on borrowers. A strong credit history and high credit score can improve the chances of approval and help borrowers secure more favorable terms. A less than great credit would have to be mitigated with increased income (lower debt-to-income ratios) or higher downpayment (lower loan-to-value ratios) to increase the chance of approval.

Flexibility for Self-Employed Borrowers: Stated income mortgages offer flexibility for self-employed borrowers who may have difficulty verifying their income through conventional means. Rather than relying on tax returns or pay stubs, borrowers can declare their earnings based on their own assessment of their financial situation.

Reduced Documentation Requirements: Unlike traditional mortgages that require extensive documentation, stated income mortgages typically have reduced documentation requirements. Borrowers may only need to provide basic information about their income, assets, and employment status, simplifying the application process.

Default Insurance: Stated income mortgages, while not insured by CMHC, can still be obtained through private mortgage default insurers like Canada Guaranty or Sagen. These insurers provide an alternative option for borrowers seeking financing without traditional income verification.

Higher Interest Rates and Fees: Stated income mortgages often come with higher interest rates and fees compared to traditional mortgages. Lenders may charge higher rates to compensate for the increased risk associated with limited income verification. Borrowers should carefully consider the long-term cost implications before opting for a stated income mortgage.

Additional Verification Methods: While stated income mortgages allow borrowers to declare their earnings without traditional documentation, lenders may still require additional evidence to validate the reasonableness of the stated income. This may include bank statements, business financial records, or invoices showing regular income streams.

Consideration of Future Income Potential: Borrowers should carefully consider their future income potential when applying for a stated income mortgage. While current income may be sufficient to qualify for the loan, fluctuations in income or unexpected expenses could impact the ability to repay the mortgage in the long term.

Overall, stated income mortgages can provide a valuable financing option for self-employed individuals and others with non-traditional income sources, resulting in more people achieving their dream of owning a home. However, borrowers should weigh the benefits and risks carefully and explore alternative financing options before committing to a stated income mortgage.

If you are a self-employed Ontarian, book a meeting with me so we can start your home ownership journey today!