A self-employed borrower applying for a stated income mortgage must typically provide what minimum down payment to avoid mortgage default insurance?

This question addresses the risk management strategies employed by Canadian lenders when dealing with stated income mortgages, also known as alternative documentation loans. These products are designed for self-employed borrowers who may have difficulty providing traditional income verification through T4 slips or employment letters. The 35% down payment requirement reflects the heightened risk profile associated with limited income documentation. This substantial equity requirement serves multiple purposes: it demonstrates the borrower's financial commitment, provides a significant buffer against potential default, and reduces the loan-to-value ratio to acceptable risk parameters. The higher down payment also eliminates the need for mortgage default insurance, which typically kicks in when down payments are less than 20%. This requirement aligns with prudential lending practices and helps maintain the stability of the Canadian mortgage market while still providing access to credit for legitimate self-employed borrowers.