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Aug 19 2015

WHAT DOES STATED INCOME MEAN AND HOW DO YOU QUALIFY?

Amina

So recently I had a client come to me – he is self-employed and is also incorporated, and works as a self-employed contractor.  He was turned down by the banks, and in addition he was getting divorced and needed to find a home for himself and his child, when she would come to stay on weekends.

We sat down together and I explained that I could proceed one of two ways; because he was incorporated, I could “fully qualify” him IF I could prove his income through his NOA’s and T1 Generals as well as other supporting documentation.

If I could not qualify him as such, I would have to qualify him as a “stated income” applicant, which is more difficult to prove, as different lenders have different requirements.

When it comes to the self-employed, lenders have made it difficult to qualify for various reasons; as an entrepreneur and business owner they benefit from income tax credits and great reductions and write-offs on their personal tax returns.  This is a great advantage when it comes to the actual amount of taxable income they have to pay tax on at the end of the year, but the disadvantage is that their net income is incredible low.  This unfortunately impacts a self-employed client’s ability to FULLY qualify.

A stated income mortgage is where the lender fully understands the self-employed income dilemma and will accept a client simply “stating” an income on their application without having to show net taxable income on your tax return to prove it.

What’s important to note is that the interest rates and/or fees/default insurance premiums are based on the credit rating and available down payment and are sometimes a little higher than a more traditional mortgage and depending on the client can be worth it if home ownership is a more affordable solution than renting.

There are basically three ways to qualify under “stated income”

Type 1: Fully Insured

In this instance, I can look at “A” lenders based on beacon score and debt ratios – rates will be lower than 3% -this is stating income that makes sense compared to the T1 Gross income for the last two years; if an applicant has provable income either on their T2125 (part of the T1 General) or corporate financials and the gross can reflect adequate income to qualify, we can go fully insured with the following documents to prove this:

  1. Proof of self employment such as a business license, Article of Incorporation, invoices etc
  2. Last two years full Income Tax Return including your T1 General and all the attachments
  3. Last two years Notice of Assessments to confirm no income tax arrears
  4. A letter from the employer stating job title, income and start date for XXXXX
  5. Recent pay stub
  6. Proof of down payment, through bank statements, RRSP statements, etc
  7. … and any other documents the lender might deem necessary at the time ( this is lender specific as some will accept stated-income individuals and some will not)

Type 2: Stated income – best rates, 80% LTV 

When we cannot provide an avg. gross income of the two years to make sense for qualifying, we must go stated income under insurer guidelines.  Here are the documents that are needed:

  1. Avg. 6 months of deposits plus invoices through last 12 months bank
  2. Last two years Notice of Assessments to confirm no income tax arrears
  3.   Last 2 years corporate financials and/or last 12 months bank statements as long as they show business activity (keeping in mind that the lender may ask for 2 yrs) – i.e., deposits
  4.   Proof of self employment such as a business license, Article of Incorporation

Type 3: Stated income – posted rates, 80% LTV 

This is stated income when there are no documents to show your income – however the rates will be upwards of 5.99%.  The only documents needed in this case are:

  1. Last two years Notice of Assessments to confirm no income tax arrears
  2.  Stated income letter “stating” to what you make –to qualify you at an amount you need.  Ie. if you need $400K to purchase a home, we state you make at least $65,000/year

Keep in mind, that “stated income” needs to make sense for the industry you work in – ie, as this client is a self-employed contractor, he was able to qualify on Type 3 as the “stated income” amount was in line with the industry.

Not all “stated income” deals are funded, but mostly due to lack of paperwork and proof of income.  This client was successful in his goals to own a home because he was willing to work with me and was able to provide the paperwork that was being requested.  If you are a self-employed client and don’t know if you can qualify, a mortgage professional can be your best ally in qualifying for a mortgage.  Speak to me today if you have been denied by the banks – we are here to help!

To your Wealth!

Amina

Please “like” my facebook page here Please follow me on twitter here

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Written by Dwania Peele · Categorized: Amina Mohamed · Tagged: Amina Mohamed, banks, Canadian Small Business Women, contractor, divorce, entrepreneur, fully insured, gross income, home, income tax, incorprated, insurance premiums, interest rate, invoices, lenders, morgage, notice of assessments, qualify, reductions, rrsp, self-employed, self-employed contractor, stated income, t1, tax credits, taxable income, write-offs

Jun 18 2015

PLANTING ONE SEED (INVESTMENT) AT A TIME!

Amina

This past weekend the weather was finally amazing to get out in the garden, dig through the earth with my fingers and pull out all the weeds before planting my vegetable garden. It got me thinking that it takes one seed at a time to harvest your garden.

What if we took the same view on our investments?

When we first start we are so keen to learn and invest in anything that comes our way – but that can be foolhardy – especially when it comes to investing!  WHY?

Ask any successful real estate investor and he or she she will tell you that the secret to their success was knowledge.  They learned everything they could before investing in their first property.  They planted one seed at a time!  Did they stop there? No they keep learning and applying that knowledge to build on their portfolio.

As an investor you must take your time to learn, which strategy suits you best. Is it student rentals, multi-family, rent to own, buy & hold, flipping, just to name a few?  Or is it lending your money for a great return or investing in syndicated mortgages or even 2nd mortgages?

Lending your money or investing in 2nd mortgages, may not provide as big returns as a bricks and mortar property, but you also don’t have the hassle of being a landlord and dealing with tenant issues.

I was recently approached by a financial advisor, who only believed that the road to wealth was paved on people investing in the stock market.  I have nothing against financial advisors, but being a person who lost a lot in the 2009 crash, I did not want to repeat past mistakes, which included investing in the stock market.  Does that mean I don’t invest in the stock market at all? NO – I do but I self-direct my investmetns and don’t leave it to somebody else to do it for me – thus I don’t incur huge MER (management expense ratio) fees, which can cut into the growth of my investments.  He could not understand why I would not recommend him to my clients.

Taking charge of your financial future should not be left up to somebody else – burrying your head in the sand and hoping your money will be taken care of is also foolhardy!  Does it take work to look after your finances? YES, but isn’t it more rewarding to see your garden grow when you have planted those initial seeds yourself?

Planting those seeds takes time but when that garden (investment portfolio) starts to grow, you will reap the rewards!

To your Wealth!

Amina

Please “like” my facebook page here Please follow me on twitter here

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Written by Dwania Peele · Categorized: Amina Mohamed · Tagged: 2nd mortgages, Accomplishments, business, business growth, business owner, Business Woman, Canadian Imperial Business Network, Content strategy, finances, financial, Investment, money, morgage, portfolio, Real Estate, stock market, vegetable garden, wealth

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