May
02

The Curious Logic Of The Self-Employed Program Known As “Stated Income”

I have an excellent client who, 5 years ago, would have qualified with his eyes closed and in about 1 hour for his mortgage application. He’s a high-earning corporate recruiter who works on contract for a major Canadian company, and files his own taxes under his own corporation. Let’s say his income is $115,000 based on his contract. He makes $115,000 and then deducts basic expenses as: car, travel, gas, food, lodging, CPP, EI, etc., and pays himself a salary from the company that he is the sole owner of. Following me so far?

When submitting a file under the stated-income “self-employed” program, two questions come into consideration:

1. The “reasonability” of income?
2. Is there a cash component?

Here’s where it gets tricky. Who determines reasonability? The insurer. That’s it. The insurer tells me whether the client makes money that is ‘reasonable’ or not. How do they come up with it? Based on income matrixes that they have. For example - a dental hygienist will make a salary range of $x to $y.  Even though someone can make more than the “average” or what is “reasonable”, the insurer comes up with the number.

Here’s where it gets really tricky: A full-time corporate recruiter could be making a gross income of $115,000 less salary payroll deductions. His income is then used at the gross level to qualify. But a self-employed corporate recruiter who grossed $115,000? NO. Her income is scrutinized to the 9th degree. Why is that? Their net numbers are essentially the same (this being their take-home pay). Yet the full-time employee gets better rates, better insurance premiums and better underwriting because his job is “guaranteed”? Yeah, show me that job and I’ll show you line from here to Nepal of applicants.

The second part of…

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