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Stated Income Mortgages

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Stated income mortgages allow borrowers to simply state their monthly income on a mortgage application instead of verifying the actual amount by furnishing pay stubs or tax returns.


This simplified method was originally intended for self-employed borrowers with complicated taxes, but has recently become more widespread, often because borrowers find it that much easier to qualify for a mortgage by stating their income.


So how does a stated income mortgages work?

Well it’s pretty straightforward really, though it does depend on documentation type.


A full documentation mortgage requires that you verify income with tax returns or pay stubs and also verify assets.


Employment Verified

In all of the above cases however, the bank or lender will verify your employment by calling your employer, or requesting an affidavit letter if you are self-employed. This is important because your job title will determine what you can state in the way of income.


If you’re a doctor, it’d be normal to state that you make $20,000 a month. But if you’re a kindergarten teacher, underwriters won’t believe that you’re making $10,000 a month. It’s just not likely, nor does it make sense for the position. And for this reason, many mortgages that “overstate” income will subsequently be declined.


It’s actually quite common to see a mortgage declined on the basis that the income does not match the job title/description, or seems too high for the related position.


Another “setback” to a stated income mortgage is that a bank or lender can ask you to present last two years Notice of Assessment and T1 Generals to show you have no taxes owed. In certain occasions borrowers may have not filed recent taxes.


Stated Income = Higher Interest Rate

If you do choose to state your income, you must pay a premium because you’re putting more uncertainty and risk in the hands of the institutional or private lender . For this reason, interest rates on stated income mortgages are often 0.5-3% higher than a full doc mortgage.


Related to that, you may also find that you’ll have to put down a larger down payment to obtain the financing you need. Again, this becomes an issue of layered risk, and because you chose to state your income, the lender may limit risk in other departments such as credit and down payment.


In closing, it’s probably safe to say that stated income mortgages are becoming a lot more restricted because of recent credit tightening worldwide. You may find that the option is becoming less prevalent, forcing many borrowers to provide full documentation or come to the table with a larger down payment.

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