In this lengthy post we do our best to explain the stated income choices a borrower has
Even if you are not self-employed you seem to still ask this question. What is a stated income mortgage? Who does it apply to? How does it affect my mortgage purchasing power? These are just a few questions we’re going to try and illuminate to help self-employed business owners obtain the homes they desire.
Reasonability
As a self-employed business owner (sole proprietor, partnership, or corporation) we have to gain a reasonable income from your business accounts, invoices etc. I will go into this in more detail below. For the time being understand that reasonability creates a max threshold that your income in theory can be stated. That being said, let’s look at what it takes and what it looks like.
Cash Flow
This is the main word. A broker examines your monthly statements from your business banking account to gain an understanding of your income and your expenses. These ins and outs create the arbitrary thought process that although you have claimed less on your personal taxes, you in fact gross more.
As a result, we can increase your max purchasing power. There are even some lenders that allow for extended ratios on the approval. Meaning you can go higher than the regular ratios that apply to regular approvals of mortgages.
Full Doc Stated Income
This is an insured (CMHC, GENWORTH, CG) program. Not truly a product. When your broker performs this mortgage for you generally you are putting the minimum 10% down payment on your purchase. Due to it being an insured program the insurers along with the lender want a better picture and clearer understanding of your income.
Below is a list of documents that could be required:
- Your articles or business registration (HST)
- 12 months of business banking
- 6 to 12 invoices for your business
- Verifiable income
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- 2 years of financials if incorporated along with t2 corporate returns
- 2 years t1 generals with personal tax returns
The stated income here is derived from reasonability more often than not at a higher scrutiny level due to the lower down payment, of which 5% has to be from own resources.
The stated income program is an amazing product. The premium that you pay is slightly higher due to overall market risk with the stated income type files but you do get your nice big house and pay fewer taxes.
Low Doc Stated Income
This is a product offered on the overall reasonability of the income you are stating, the overall strength of your business and the ability to cash flow for the foreseeable future. It is only offered on the lender side, not the insurer side. As such it’s a mortgage product instead of a mortgage insurance program.
Low doc means…you guessed it low document verification. Overall this program caters to the business owner with a larger down payment. 20% minimum is required. In some cases, the lender requires that the money is from one’s own resources, and yet other lenders allow the full amount to be gifted. The rates for the stated income vary as well.
Documents needed for these products are:
- Your articles or business registration (HST)
- 12 months of business banking
- 6 to 12 invoices for your business
Please be aware that when fewer documents are being provided and the proliferation of the use of online presence allows lenders to perform homework. Sometimes based on this they require additional clarification on bank statements and or invoices.
Stated income is an incredible product. It can get confusing and stressful when being asked for unnecessary documents. At Mortgage Suite we carefully assess the business dynamics of your cash flow to determine your best move forward.
