"Stated income" mortgages, where self-employed individuals declare their income without traditional documentation, have become significantly more difficult to obtain in Canada, especially with major banks. This is due to tighter regulations implemented since 2008.

However, there are still options for self-employed individuals to get mortgage approval, often through what are now more commonly referred to as "Business for Self" or "Alt-A" mortgage programs offered by B lenders, credit unions, and some specialized divisions of larger banks. These are not strictly "stated income" in the historical sense, as they still require some level of income validation, but they are more flexible than traditional mortgages.

Here's a breakdown of what you need to know about "stated income" mortgage approval for business for self in Canada:

What "Stated Income" Used to Mean vs. Current Reality:

* Past: "Stated income" mortgages truly allowed borrowers to simply state their income with little to no documentation. These carried high risks and have largely been phased out due to regulatory changes.

* Present: While the term "stated income" is still used loosely, current programs for self-employed individuals typically require some form of income validation, even if it's not the traditional T1s and NOAs that salaried employees provide. This is often called "Business for Self (Alt. A)" or similar.

Key Considerations and Requirements for Self-Employed Mortgage Approval:

* Length of Time in Business: Most lenders require you to have been self-employed for at least two years, sometimes three. This demonstrates stability and consistency in your business.

* Income Validation (Alternative Methods):

* Reasonableness of Stated Income: Even if you "state" your income, it needs to be reasonable for your industry, the type and size of your business, and your personal financial profile.

* Business Bank Statements: Lenders will often review 6 to 12 months of business bank statements to verify income and expenses, ensuring that the stated income aligns with your cash flow.

* Letters of Declaration: You may need to provide a letter declaring your income, often accompanied by other business documentation.

* Professional Financial Statements: Some lenders, particularly for incorporated businesses, may require financial statements prepared by a Chartered Professional Accountant (CPA).

* GST/HST Returns: Proof of paid GST/HST can also be used as an indicator of business activity.

* Contracts/Invoices: For some businesses, especially those with contract-based income, showing signed contracts or recurring invoices can help prove future revenue.

* Credit History: A strong credit score and a history of responsible credit management are crucial. Even with alternative income verification, lenders need to see that you manage your finances well.

* Down Payment:

* Higher Down Payment: Expect to need a higher down payment than for a traditional mortgage. While 5% is the minimum for some insured mortgages, self-employed individuals often need 10%, 20%, or even 35% down for "stated income" or "Alt-A" programs.

* Down Payment Source: You'll need to demonstrate the source of your down payment (e.g., personal savings, non-repayable gift).

* Mortgage Default Insurance:

* If you have less than a 20% down payment, mortgage default insurance (from Sagen or Canada Guaranty – CMHC no longer insures self-employed mortgages without traditional income proof as of 2014) will likely be required. These insurers have specific programs for self-employed individuals.

* Debt Service Ratios (GDS/TDS): Lenders will still assess your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to ensure you can comfortably manage the mortgage payments.

* Tax Arrears: You'll need to provide a Notice of Assessment (NOA) from the Canada Revenue Agency (CRA) to demonstrate that you have no tax arrears.

Where to Look for Approval:

* B Lenders/Alternative Lenders: These financial institutions specialize in borrowers who don't fit the traditional bank criteria. They are more flexible but often come with higher interest rates and fees.

* Credit Unions: Many credit unions offer self-employed mortgage programs with more flexible underwriting.

* Mortgage Brokers: A mortgage broker is your best resource. They have access to a wide range of lenders and can help you find the best program tailored to your specific self-employment situation. They understand the nuances of self-employed income and can help present your application in the most favourable light.

In summary, while a pure "stated income" mortgage (where you provide almost no income proof) is largely a thing of the past in Canada, there are still viable "Business for Self" mortgage options for self-employed individuals. These programs offer more flexibility than traditional mortgages but will require some form of income validation and often a larger down payment and potentially higher interest rates.