A stated-income mortgage lets a self-employed borrower declare an income the lender then tests for reasonableness, instead of qualifying only on the income shown on their tax returns. It exists because business owners can earn enough to carry a mortgage while reporting a much lower taxable income after legitimate deductions. Most of these mortgages come from alternative lenders, cost more than a bank mortgage, and are meant to be replaced once the borrower can qualify on paper. This page is part of our guides to mortgages outside the standard bank route.
How banks assess self-employed income in general, including which deductions they add back, is covered in our guide to self-employed mortgages in Canada. This page covers what happens when that route doesn’t produce a high enough income.
The documentation gap
Banks normally qualify a self-employed applicant on the income on their notices of assessment (line 15000 of the return), averaged over two years. Deductions for a vehicle, home office, capital cost allowance and other business costs lower that figure, sometimes well below the cash the business actually generates.
A contractor bills $180,000 a year and, after business expenses and write-offs, reports $65,000 of net income. A bank qualifying on the tax return sees $65,000. A stated-income lender looks at the deposits in the business account, the accountant’s letter and what similar businesses earn, and may accept a stated income between the two figures.
What lenders accept instead of tax returns
| Documentation level | What you provide | Relative cost |
|---|---|---|
| Alternative documentation | 12 to 24 months of business bank statements showing regular deposits, plus an accountant’s letter | Lowest premium over a bank rate |
| Stated income | A declared income, 6 to 12 months of bank statements, and proof the business exists (business licence, GST/HST registration, articles of incorporation) | Higher |
| Equity-based | Little income proof; the decision rests mainly on the property’s value and the size of the down payment | Highest, usually through private lenders |
The accountant’s letter
Most lenders that offer stated-income programs ask for a letter from the borrower’s accountant on letterhead. It usually covers:
| Element | What it says |
|---|---|
| The business | What the business does and its industry |
| Years in business | How long it has operated (two years is the usual minimum) |
| Stated income | That the income the borrower states is reasonable for the business |
| Standing | That the business is active and in good standing |
| The accountant | Designation, firm and contact details |
The accountant doesn’t guarantee the income. The letter confirms it is reasonable, and the lender cross-checks it against the bank statements and what comparable businesses earn. If the stated figure is well above the norm for the industry, expect requests for contracts, client lists or business financial statements.
Typical requirements
| Requirement | What lenders usually look for |
|---|---|
| Time self-employed | Two years or more; some programs accept less with experience in the same line of work |
| Business verification | Business licence, GST/HST registration or a CRA business number |
| Bank statements | 6 to 24 months of business deposits that support the stated income |
| Accountant’s letter | As above |
| Credit | A clean recent history; stated-income programs are for documentation problems, not credit problems |
| Down payment | Larger than an insured mortgage needs; 20% or more is common for an uninsured stated-income mortgage |
| Property | Standard residential homes; rural or unusual properties may be limited |
An insured option: CMHC Self-Employed
Some borrowers don’t need an alternative lender at all. CMHC’s self-employed program gives self-employed borrowers access to mortgage insurance at no extra cost, so a bank or other approved lender can offer an insured mortgage with less than 20% down. CMHC recommends at least 24 months operating the business or working in the same line of work, with flexible options for the recently self-employed, and it accepts alternative documents such as business financial statements. For sole proprietors and partners, self-employment income may be grossed up by 15% or by adding back eligible deductions. The CMHC insurance rules explain the general insurance criteria.
Where stated-income mortgages come from
B-lenders. Most stated-income lending happens at B-lenders: trust companies and smaller banks that specialise in borrowers banks decline, usually reached through a mortgage broker. Our B-lender mortgage guide explains how they compare with banks and private lenders and what they charge, and the best B-lender mortgages page compares named lenders.
Private lenders. When B-lenders decline, private mortgage lenders and mortgage investment corporations lend mostly against the equity in the property, for short terms and at the highest cost. They are usually a bridge while the borrower builds the documentation a B-lender or bank needs.
What it costs
A stated-income mortgage costs more than a fully documented one: a higher rate (compare quotes with current mortgage rates to see the premium), often a lender fee taken from the advance, sometimes a broker fee, and a shorter term. The B-lender cost breakdown walks through each piece.
Moving to a bank at renewal
The usual plan is to use a stated-income mortgage for a term and then qualify with a bank. What helps is two consecutive years of reported income high enough to qualify (banks average the two years), fewer discretionary deductions, a steady salary from your corporation if you’re incorporated, and lower debts. Which deductions a bank will add back is explained in the self-employed mortgage guide. Lowering deductions raises your tax bill, so the saving on the mortgage rate is worth weighing against it with an accountant.
Common mistakes
| Mistake | Consequence |
|---|---|
| Overstating income | Misrepresenting income on a mortgage application is mortgage fraud and can lead to the loan being called and criminal charges |
| No accountant | Most stated-income programs require an accountant’s letter, so the relationship needs to exist before applying |
| Mixing personal and business accounts | The lender can’t see business income in the deposits |
| Not keeping statements | Lenders want up to 24 months of business bank statements |
| No plan for renewal | Staying at an alternative lender’s rate longer than needed |
Step by step
- Confirm how long you have been self-employed, and gather 12 to 24 months of business bank statements, your business licence or GST/HST registration, and two years of tax returns and notices of assessment.
- Ask your accountant for a letter confirming the business and that your stated income is reasonable.
- Talk to a mortgage broker who places self-employed and alternative mortgages; they will check whether an insured option fits before going to B-lenders.
- Settle on a stated income that your deposits and industry support.
- Get pre-approved, make an offer with a financing condition, and close.
- Plan the move to a bank for renewal from the start.
Gig and contract workers are covered in the self-employed mortgage guide, and commission earners have their own guide to mortgages with commission income. If credit, not documentation, is the main obstacle, see getting a mortgage with bad credit.