Stated Income - Self Employed Mortgage Borrowers

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Hi, everyone. It's Rowan Smith from the Mortgage Centre. I've had several calls this week that have all dealt with stated income programs, people saying, "How come I can't use stated income?".

Let me explain what stated income is. Stated income is a program that was designed for self-employed and fully commissioned people who have a difficult time confirming their income through traditional standards. That's right off of the box, as it were.

What that really means is self-employed people that earn cash under the table doing jobs, contract jobs, or maybe their income's difficult to prove because they have a lot of write-offs such as use of home, capital cost allowance and depreciation, all of these situations. So if you know somebody who's self-employed and says they can't get a mortgage, we could look at using a stated income mortgage application.

Now having said that, stated income does not mean fabricated income. There has to be an element of reasonability here. If someone says they make $90,000 a year as a hair salon owner, that's reasonable if we can show that they in fact have gross revenues that exceed that.

We don't want to see somebody who files $10,000 of taxes but tells me they make $100,000. Something doesn't add up with that. I wouldn't want to lend them money on that if I was a lender, and I don't expect that they should.

So if you know someone who's trying to state an unreasonable amount of income, don't bother wasting your time with it. It's not going to get done. It has to be reasonable, and it has to be based on their actual earnings, something that's verifiable but perhaps not fully taxable because of various number of reasons.

Let me give you an example where someone with stated income made perfect sense. I dealt with a very wealthy individual who owns multiple corporations. He pays himself from T4s from various corporations in his personal name. His personal name only shows $60,000 a year, but he makes about $600,000 a year of income.

This is a classic case where stated income made perfect sense for us to use it. He can document through his financial statements that he's making millions of dollars of revenue, but he's only pulling out in his personal name a certain amount.

Now that's because his companies are in fact paying his mortgage. That doesn't mean he's not earning the money; it just means that from an accounting standpoint it's difficult to document.

So, stated income: it's a great program out there, but it only applies to people that legitimately have the earnings but can't document it one way or the other.

You can expect that crystal-clean credit is going to be required for stated income. It's not going to be available for someone that's had a lot of problems. At least it may be available, but not at fully discounted rates.

So if anyone in those situations that I've described thinks they could use a helping hand, I'm Rowan Smith from the Mortgage Centre.

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