You run a successful contracting business earning $140,000 annually. But your tax returns show $68,000 in taxable income after business write-offs. A traditional bank looks at your tax returns and qualifies you for a mortgage based on $68,000 — half of what you actually earn. Your purchasing power is cut in half because of smart tax planning.
This is the self-employed mortgage trap, and it affects hundreds of thousands of Canadian business owners. The solution is stated income mortgage programs — alternative lending options that qualify you based on your actual earnings, not just your taxable income.
Stated income mortgages are not subprime loans. They are legitimate products offered by regulated B-lenders to borrowers who have strong income but cannot document it in the traditional way. This guide explains how they work, who qualifies, what they cost, and how to navigate the application process.
What Is a Stated Income Mortgage?
A stated income mortgage allows you to declare your income without providing full traditional documentation (two years of tax returns, T1 Generals, and Notices of Assessment). Instead, you provide alternative documentation that demonstrates your income capacity.
What stated income is NOT:
- It is not a "no-doc" loan (you still provide documentation, just different types)
- It is not a lie-about-your-income program (you must have legitimate earnings)
- It is not subprime (these are B-lender products with reasonable rates, not private mortgages)
What stated income IS:
- Alternative documentation for self-employed borrowers
- Qualification based on actual business revenue or bank deposits, not taxable income
- Higher down payment requirements (typically 20% to 35%)
- Slightly higher interest rates (0.5% to 2.0% above prime rates)
Who Needs Stated Income Programs?
Self-Employed Business Owners
You run a profitable business but write off aggressively to minimize taxes. Your tax returns show $60,000 taxable income, but your actual business revenue is $150,000.
Example: You own a landscaping company. After deducting equipment, vehicle expenses, fuel, materials, and depreciation, your taxable income is $55,000. But your gross business revenue is $180,000, and your actual take-home (before deductions) is $120,000.
A traditional lender qualifies you based on $55,000. A stated income lender can qualify you based on $100,000 to $120,000 by reviewing your bank statements and business financials.
Commission-Based Employees
You work in sales and earn $150,000/year, but 80% is commission. Your base salary is $30,000. Traditional lenders average your commission over 2 years and heavily discount it. If you had a slow year two years ago, your qualifying income is drastically reduced.
Example:
- 2023 income: $95,000
- 2024 income: $155,000
- 2025 income (YTD): $145,000
A traditional lender averages 2023 and 2024: $125,000, then discounts commission income by 25% to 50%, leaving you qualifying at $90,000 to $95,000. A stated income lender looks at your recent bank deposits and qualifies you closer to $140,000.
Recently Self-Employed (Less Than 2 Years)
You left corporate employment 18 months ago to start your own consulting business. You are earning $130,000 annually, but you do not have two full years of self-employed tax returns.
Traditional lenders require two years of self-employed history. Stated income lenders can approve you with 12+ months of bank statements showing consistent deposits.
Income Not Easily Verified
- Cryptocurrency traders with significant gains (not reported as traditional employment)
- Gig economy workers (Uber, Skip, multiple platforms)
- Cash-heavy businesses (restaurants, salons, construction)
- Foreign income or international contractors
How Stated Income Mortgages Work
Instead of relying solely on tax returns, stated income lenders use alternative documentation to verify your ability to repay.
Alternative Documentation Accepted
Bank statements (most common):
- 12 to 24 months of business and/or personal bank statements
- Lender reviews deposits to determine average monthly income
- Typically calculates income as average monthly deposits × 12
Example:
- Average monthly deposits over 12 months: $11,500
- Stated income: $11,500 × 12 = $138,000
Business financial statements:
- Accountant-prepared income statements (not full tax returns)
- Year-to-date profit and loss statements
- Cash flow analysis
Contracts and invoices:
- Current client contracts showing ongoing revenue
- Invoices issued and paid over the past 12 months
- Purchase orders or letters of intent from clients
Industry income verification:
- Some lenders have industry-specific income guidelines (e.g., dentists, physicians, real estate agents)
- If you work in a profession with known average earnings, the lender may use industry benchmarks
The Calculation Method
Different lenders use different methods to determine your qualifying income from bank statements.
Method 1: Gross Deposits
- Lender adds up all deposits over 12 months
- Divides by 12 to get average monthly income
- Uses that as gross income for qualification
Method 2: Net Deposits After Business Expenses
- Lender reviews deposits and identifies business revenue vs personal transfers
- Applies an expense ratio (e.g., 30% to 50%) to account for business costs
- Uses net income for qualification
Method 3: Percentage of Gross Business Revenue
- For businesses with known expense ratios, lender uses gross revenue × (1 - industry expense ratio)
- Example: Contractor with $200,000 gross revenue, 40% expense ratio = $120,000 qualifying income
The method used affects your qualification significantly. A broker familiar with stated income lenders knows which lenders use the most favorable calculation for your specific income structure.
Down Payment Requirements
Stated income mortgages require larger down payments than conventional mortgages.
Typical Down Payment Requirements
20% to 25% down: Most common requirement for stated income programs 25% to 35% down: For higher-risk profiles (newer business, volatile income, lower credit score)
Example:
- Purchase price: $600,000
- Down payment (25%): $150,000
- Mortgage amount: $450,000
Why larger down payments?
- Lender is taking more risk by not using traditional income verification
- Larger equity reduces lender's exposure if you default
- Demonstrates your financial capacity and commitment
Where Down Payment Comes From
- Savings from your business over time
- Sale of another property
- Gift from family (requires gift letter)
- RRSP withdrawal (Home Buyers' Plan, if first-time buyer)
- Refinance of another property you own
You cannot use borrowed funds (line of credit, loan) for your down payment. Lenders verify source of funds.
Interest Rates and Costs
Stated income mortgages cost more than traditional mortgages, but they are not private mortgage rates.
Interest Rates (2025)
A-lender (traditional documentation): 4.5% to 5.2% B-lender (stated income): 5.8% to 7.2% Premium over A-lender: 0.5% to 2.0%
Example:
- Mortgage: $450,000
- A-lender rate: 4.8% → Payment: $2,623/month
- B-lender stated income rate: 6.5% → Payment: $2,976/month
- Difference: $353/month
Over 5 years, the higher rate costs you approximately $21,000 more. But it gives you access to a mortgage you otherwise could not get.
Lender Fees
Most B-lenders charge a lender fee, typically 1.0% to 2.0% of the mortgage amount, added to your mortgage balance.
Example:
- Mortgage: $450,000
- Lender fee: 1.5%
- Fee amount: $6,750 (added to mortgage)
- Actual mortgage balance: $456,750
Exit Strategy: Refinancing Back to A-Lender
Stated income mortgages are often a bridge. After 1 to 2 years, you may be able to refinance to an A-lender if:
- You now have two full years of self-employed tax returns
- Your income has stabilized and is clearly documentable
- Your credit score has improved
Example:
- Year 1-2: B-lender stated income at 6.5%
- Year 3: Refinance to A-lender at 4.9%
- Payment drops from $2,976 to $2,634/month
The goal is to use stated income as a short-term solution until you meet traditional documentation requirements.
Eligibility Requirements Beyond Income
Stated income programs still have qualification criteria beyond just income documentation.
Credit Score
Minimum credit score: 600 to 650 (depending on lender) Ideal credit score: 680+
Lower credit scores may still qualify, but expect higher rates or larger down payment requirements.
Debt Service Ratios
Even with stated income, you must meet debt service ratio requirements.
GDS (Gross Debt Service): Housing costs ≤ 39% to 42% of gross income TDS (Total Debt Service): All debts ≤ 44% to 50% of gross income
Some stated income lenders allow higher TDS ratios (up to 50%) because they recognize self-employed borrowers often have legitimate business debts.
Employment Stability
Minimum self-employment history: 12 to 24 months (depending on lender)
If you have been self-employed for less than 12 months, stated income programs are not available. You would need to wait or use private lending.
Property Type
Most stated income lenders prefer:
- Single-family homes
- Townhouses
- Condos in well-maintained buildings
Harder to finance with stated income:
- Rural properties
- Mixed-use properties
- Properties requiring significant repairs
- Co-ops or leasehold properties
Stated Income vs Traditional: When to Use Each
Use Traditional Documentation (A-Lender) If You Can
If you can qualify based on tax returns, you should. A-lenders offer:
- Lower rates (4.5% to 5.2% vs 5.8% to 7.2%)
- No lender fees (vs 1% to 2%)
- Smaller down payment requirements (5% to 20% vs 20% to 35%)
When traditional works:
- Your taxable income is sufficient to qualify
- You have two years of tax returns showing consistent income
- You are willing to accept the qualifying amount based on your tax returns
Use Stated Income (B-Lender) When Traditional Won't Work
When stated income is the right choice:
- Your taxable income is 30%+ lower than your actual earnings due to write-offs
- You have less than 2 years of self-employed history
- Your income is highly variable year-to-year (commission, project-based)
- You work in multiple income streams that are difficult to aggregate on tax returns
Real Calgary Example: Stated Income Success
Profile:
- Borrower: Sarah, owner of digital marketing agency
- Actual business revenue: $180,000/year
- Taxable income (after write-offs): $72,000
- Home purchase price: $580,000
- Down payment saved: $145,000 (25%)
Traditional lender attempt:
- Qualifying income: $72,000
- Maximum mortgage qualification: $280,000
- Not enough to purchase $580,000 home
Stated income lender approval:
- Lender reviewed 18 months of business bank statements
- Average monthly deposits: $13,500
- Stated income: $162,000 ($13,500 × 12)
- Approved for: $435,000 mortgage at 6.2%
- Purchased the $580,000 home
Plan:
- Use stated income mortgage for 2 years
- Continue growing business and stabilizing income documentation
- Refinance to A-lender at renewal (year 3) at lower rate
Result: Homeownership achieved despite aggressive tax planning.
How to Apply for a Stated Income Mortgage
Step 1: Work With an Experienced Broker
Not all mortgage brokers understand stated income programs. You need someone who:
- Has relationships with B-lenders offering stated income
- Understands how different lenders calculate income from bank statements
- Can present your application in the strongest way possible
Step 2: Gather Documentation
You will need:
- 12 to 24 months of business bank statements
- 12 to 24 months of personal bank statements
- Business license or incorporation documents
- Letter from accountant confirming you are self-employed
- Year-to-date profit and loss statement
- Credit bureau (broker will pull this)
- Down payment verification (90 days of statements showing funds)
Pro tip: Before submitting bank statements, review them yourself. Flag any large deposits that are NOT income (transfers between accounts, loans, gifts). Provide explanations upfront so the lender does not misinterpret them as income.
Step 3: Calculate Your Realistic Qualifying Income
Look at your average monthly deposits over 12 months. Multiply by 12. This is roughly what a stated income lender will use.
Example:
- Month 1: $9,500
- Month 2: $14,200
- Month 3: $11,800
- ... (9 more months)
- Average: $12,300/month
- Stated income: $147,600/year
Use this to estimate your mortgage qualification before applying.
Step 4: Understand Your Approval Timeline
Stated income applications take longer than traditional applications.
Timeline:
- Application submission: Day 1
- Initial review and conditional approval: 3 to 5 days
- Bank statement review and income calculation: 5 to 10 days
- Final approval: 10 to 14 days
Total: 2 to 3 weeks (vs 7 to 10 days for traditional applications)
Common Mistakes to Avoid
Mistake 1: Mixing Business and Personal Funds
If your business revenue and personal transfers are in the same account, it is difficult for lenders to distinguish income from non-income deposits.
Fix: Maintain separate business and personal accounts. This makes income verification cleaner.
Mistake 2: Irregular Deposits
If your income is highly irregular (one month $4,000, next month $22,000), lenders may discount your stated income or require a larger down payment.
Fix: If possible, establish a consistent draw or salary from your business for 6+ months before applying.
Mistake 3: Not Explaining Large One-Time Deposits
Lenders see a $50,000 deposit and assume it is income. If it was actually a loan or a transfer from savings, failing to explain this inflates your income and can lead to a decline when discovered.
Fix: Provide a letter of explanation for any deposits over $5,000 that are not business income.
Mistake 4: Applying to A-Lenders First
If you know you cannot qualify traditionally, do not waste time applying to A-lenders. Multiple declines can hurt your credit score and create a paper trail of rejections.
Fix: Work with a broker who can assess your situation and direct you to the right lender (A or B) from the start.
FAQ: Stated Income Mortgages
Q: Are stated income mortgages illegal or fraudulent? A: No. They are legitimate products offered by regulated B-lenders. You must have real income — you are just documenting it differently.
Q: Can I use stated income with less than 20% down? A: No. Stated income programs require minimum 20% down, and most require 25% to 35%.
Q: Will using stated income hurt my credit? A: No. Stated income is a documentation method, not a credit product. Your credit is unaffected.
Q: Can I get a stated income mortgage as a salaried employee? A: Unlikely. Stated income is designed for self-employed or commission-based borrowers. Salaried employees can easily provide pay stubs and T4s for traditional qualification.
Final Thoughts
Stated income mortgages are a lifeline for self-employed Calgarians who earn strong income but cannot document it in the traditional way. The rates are higher, the down payments are larger, and the process is more complex — but for many business owners, it is the only path to homeownership.
If you are self-employed and your taxable income is significantly lower than your actual earnings, do not assume you cannot get a mortgage. Explore stated income programs, work with an experienced broker, and be prepared with 12+ months of clean bank statements.
Homeownership is achievable for self-employed borrowers — you just need the right lending solution.
For more self-employed mortgage strategies, see the Self-Employed Mortgage Guide for Canada.
Questions about stated income mortgages or self-employed financing? Contact Jay: jaysinghmortgage@gmail.com or 403.409.1126.
