Top 10 Reasons Not To Lie About Your Income

Lying-about-income-to-get-a-mortgage Stated-income mortgages allow well-qualified business owners and commission-based borrowers to state their income instead of proving it traditionally.

People sometimes think that inflating their stated income on the application will improve their odds of approval.  Here are 10 reasons why you should give your head a shake before attempting it:

  1. The underwriters reviewing your application are smart, perceptive, and very instinctive when it comes to misrepresentation.
  2. Lenders are good at picking up inconsistencies in applications.  (Are you thinking of stating a $200,000 income to go with your maxed out credit cards and minimal net worth? Forget it.)
  3. Many lenders have computer models programmed to detect income discrepancies.
  4. Lenders expect a certain number of borrowers to lie, so they look for it.
  5. Lenders have megabytes of statistics to help them figure out what you should be earning.
  6. If CMHC declines your stated-income application, that means you’re declined with CMHC everywhere–not just at the lender you applied with. 
  7. If you cannot qualify using traditional income verification, and you get declined because of questionable income, you may not be able to get approved at all!  In other words, if you have to use a stated income program, you sometimes only get one shot to qualify.
  8. If lenders find income inconsistencies at the last minute, they can withdraw your approval and you could be left without financing right before closing.
  9. Misstating income is fraud!  Penalties for fraud over $5,000 can hurt.
  10. You already know this, but it’s bad karma to lie.

If you have questions about what self-employed income to use, talk to a mortgage professional.  The rules are pretty clear and they can walk you through them.

  1. And don’t forget this one:
    11. If you can’t qualify using your real income then you probably can’t afford the mortgage payments anyway!

  2. Hi Rob the stated income programs should be totally eliminated. For those that are self emplyed and make more than what they claim well too bad. You cannot have your cake and eat it too. I am a salary paid employee and pay Revenue Canada a fair amount of taxes of each pay. I have a personal issue with someone who only pay Revenue Canda taxes based on $20,000 income but can buy a house and quaily for a $500,000 mortgage.
    You say in your post not to lie about your income. If you are using stated income you are either lying to the lender about what you actually make or you are lying to Revenue Canada about what you actually make and we all know that CCRA can make your life much worse than any lender can.
    I think it is only a matter of time before CCRA goes after a lender for providing high mortgage amounts to people we claim little to no income

  3. Banker99
    Over 2 million Canadians are self employed. Many don’t T4 all their income, yet run honest businesses and pay all their taxes. It is for these people that stated income programs exist.

  4. There are countless deductions that can legitimately reduce declared BFS income.
    There are also different ways that business owners draw income. Look at someone who has invested money in their business by way of shareholder loan. That individual may choose to draw their income via repayment of that loan instead of paying themselves a salary.

  5. Banker99:
    Many business owners dividend out profits from their businesses. Those dividends are taxed within the corporation, and at the individual level, so the taxes are paid in full in accordance with CRA requirements. However, the fact that these dividends don’t appear on a T4 doesn’t negate the fact that they can be used to service a mortgage.

  6. Self employed
    If you pay yourself via dividends you see that money as income on your tax returns and as long as you have 2 years of consistent dividend payments then the bank will accept that as income and actually there is no need to go under a stated income product.

  7. What if I don’t have 2 years consistent dividends, but I make a lot of money this year?
    I also heard some lenders don’t accept dividend income. True?

  8. Banker99,
    The CRA states that an incorporated contractor such as myself can pay myself mileage payments at the rate of 46 cents per km. Being an Environmental Consultant, I put on 100-120,000 KMS a year. My truck costs me 40-45k, and it lasts 3 years. Fuel usually runs me 10-14k a year. I sell it before it becomes a bomb and nickel and dimes me. I end up way ahead of the game.
    That money is not able to be stated on a T4, but it doesnt excuse the fact it finds its way legally into my bank account.
    If you have a problem with the system, take it up with your MP and/or your MLA.

  9. Headshot,
    If you make alot of money this year and then you may want pay off your house this year.
    One year’s windfall shouldn’t give you a confidence to get a 25 year mortgage.
    Folks buying houses without thinking about the future is one reason why we have the current crisis.

  10. Banker99 does not know what he/she is talking about. I work as an incorporated consultant and pay all my taxes completely legit (audited by CA). If my company pays myself ONLY the max dividend that does not require me to pay any personal tax (the div is taxed in the corporation at their rates), THEN my personal income will be around 37K a year. The rest of the $$$ I make a year will be left in the corporation accounts for tax deferral purposes. This is completely legit and yet the 37K personal income is not anywhere close to what I might be making in terms of real income (200K+). People who dont know what they are talking about should think before posting.

  11. Agent 111
    Then you should only be able to quailfy for a mortgage based on $37,000. Like I said in my first post “you cannot have your cake and eat it to.”
    As well agent111, CMHC no longer allows stated income for an owner of an incorporated company.
    Perhaps you should take your own advice and think before you post.

  12. I side with banker99 too. Agent111 seems to see in his example that the individual and the individual’s company as one entity. Although practically true, that’s not the case in the legal or taxation sense. The example individual could try to apply for the mortgage with his $37k income and have it co-signed by his corporation (if there’s such a thing).

  13. And yah, I am in the camp that thinks it’s not fair for a self-employed person to claim his mileage for his work but no claims for the salaried person who commuted back and forth from work.

  14. Thank you to all for your comments. Please note, that for the integrity of CMT’s forums, comments made under different names from the same IP address may be deleted without notice.
    Thank you for understanding,
    CMT Reader Support

  15. The idea of deleting posts made under different names from the same ip address is rediculous. Many office buildings have several employees sharing one public IP Address. Many home networks are setup the same way.
    I don’t see any reason why multiple people from the same building shouldn’t be able to post on CMT.
    If you are concerned about integrity just put a comment on the thread that says something like “David27 and Jane97 have both posted from the same ip address. David27 and Jane97 may (or may not be) be the same person”.

  16. Dom,
    It makes poor business sense to have a house in the corporation. If it is in the corporation, then the house is subject to any legal proceedings against the corporation.
    Also Dom, when I go to work, I put a MINIMUM of 400kms on a day. You either live in a city with mass transit. If you dont have mass transit, you live in a smaller community in which you can walk to your place of business. I can not use any other method of transportation to complete my duties. Theres the difference, and very possibly it is also the rub. You get to drive your vehicle to and from work, and that is a luxury.
    If you are given a company vehicle, driving to and from work will cost you 24 cents a km, as that is what CRA has deemed as the value of that perk. CRA goes strong on this.
    In addition to all this, a Corporation (Inc, Corp, Ltd etc) is considered a separate entity…almost like a ghost entity that someone who is not necessarily the creator has control over. This control can be distributed a number of ways, and can be controlled from a singular individual to multiple individuals. It is not and never can be considered one and the same as an individual.
    Seriously, if you do not like it, take it up with your MP and/or MLA. See how far you get with it.

  17. Computerguy,
    Your feedback is appreciated. In this particular case there was a record of activity suggesting these posts under different names from the same IP were disingenuous.
    In future cases, depending on the circumstances, we’ll try to leave the post up with an editor’s disclaimer, similar to what you suggested.
    Thanks once again,
    CMT Reader Support

  18. John- You said “One year’s windfall shouldn’t give you a confidence to get a 25 year mortgage. Folks buying houses without thinking about the future is one reason why we have the current crisis.”
    Does this imply I am not thinking about the future and people like me are causing some kind of crisis?? You have no idea about my finances. Why you are using my question to get up on a soapbox?
    I was simply asking what to do if I don’t have 2 years consistent dividends, but have made a lot of money this year. I make more than enough to buy a house, thank you. I just don’t know where to go because most of my income is dividend income and it is not consistent for two years. This year was much better than last year for my business because we have grown by six figures.
    I know I wouldn’t be approved under a regular mortgage where you have to show T4s or tax returns for two years. A stated income mortgage seems like my best hope and was just looking for information.

  19. It should also be noted that when “stating your income” your mortgage changes. CMHC/Genworth requires a mucher higher % down, and for each Insurer, I believe you must put down 35% rather than 25% to avoid paying for insurance altogether. Also the rates are less favorable, so there is a downside to taking a stated income mortgage.
    This is what I ran into about a year ago when building my current house, and chose not go down the stated income route, rather I used my T4 income because I was buying the same house no matter what…I was able to get a RBC mortgage at prime – 0.85, and I love it immensely.

  20. banker99, I’m self employed and my T4 shows a fairly modest number. However, that is after my car has been paid by my corporation – as well as some other expenses. So, my purchase power AFTER those expenses is MUCH higher than my T4 suggest. In that sense, it makes total sense that there be some flexibility with the amount a self employed can borrow. YES, some of us can afford much more than T4 suggest – and doing it all by the book. If this is something you really, really take personally and bothers you, why not start your own business? Don’t forget that you will be subject to many threats/responsibilities you don’t need to worry about with your current job.

  21. I think that you should get a job that CRA allows you to expense home/traveling work expenses… I have worked in an office and find that one earns less money because they can’t deduct…If you hate the fact that you can’t deduct more $$, get a job where you can… stress is added in those jobs though

  22. I should point out here that I have nothing but the upmost respect for those that have started their own company and have done well doing so. Someone made a point earlier that the future is risky for someone who is BFS as they are unsure what they will make. I think it is safe to say that tomorrow is risky for ANYONE in todays market regardless if you are BFS or salary. Look at the history of posts on this site that has mentioned lenders shutting their doors. How many salary people losts their jobs in these cases?
    However saying all that I will say it again, you cannot have your cake and eat it to. Lets take that vehcile for example. Lets say John Doe is a sales rep making a salary of $66,000 and he gets 45 cents a km for expenses. John has a very large territory and on average gets a $2000 expense cheque every month for km usage. Since the $2000 is not T4 John cannot use that extra income to qualify for a higher mortgage. To make matters worse we will assume John has an auto loan with a $600 mth payment. Even though the $2000 he receives each month more than covers all costs any bank will put the $600 auto payment in his TDS calculation. Seem fair?
    For those of you that are BFS at least you cn prove that the company is paying the $600 auto payment so it is not included in the TDS calculation.

  23. Banker99.
    The company can not pay for your vehicle if it is in your personal name, and then pay mileage over and above that. The vehicle will weigh against your TDS, and a banker who plays the by the rules as the book reads will not make an exception.
    As I said earlier, there are penalties to going on a stated mortgage. Rates arent as good, I believe that you have to pay more INS $$$ to CMHC/Genworth if you arent able/willing to come up with 35% down, etc.

  24. Paulo it is not uncommon for a vehicle to go into a company name however the owner of the company must personally guarantee the loan hence the loan would be on your personal credit bureau and included in TDS unless you can prove via financials that the company pays for it.
    You are correct that the insurance premiums are higher from CHMC/Genworth however I am not sure the rate is higher however I could be wrong.

  25. I disagree with you completely…First of all you thinking its a bad thing to LIE to CRA shows how little you undrestand about the world you live in. CRA collects income taxes that are meant to pay off Canada’s debt to the world banking elite… They have attempted assassination of government officials who wanted to bring the issue to light, infiltrated our political system and now are forcing us to pay more than 50% of our income back to a bunch of fat pigs.
    It’s called modern slavery my friend and you should look it up (documentaries such as money masters and a little bit of reading will help and not the tainted government media that lies through it’s teeth to reassure the sheep that all is well.

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