A self-employed borrower cannot provide traditional income verification. Which mortgage product would most likely be appropriate?
Correct Answer
B) Alt-A or stated income mortgage
Alt-A (Alternative-A) or stated income mortgages are designed for borrowers who cannot provide traditional income documentation, such as self-employed individuals. These products typically require higher down payments and carry higher interest rates to compensate for increased risk, but do not require conventional income verification.
Why This Is the Correct Answer
Alt-A or stated income mortgages are specifically designed for borrowers who cannot provide traditional income verification, making them ideal for self-employed individuals. These products allow borrowers to state their income without providing conventional documentation like T4s or pay stubs. Lenders compensate for the increased documentation risk by requiring higher down payments (typically 20% or more), stronger credit scores, and charging higher interest rates. This product category directly addresses the challenge faced by self-employed borrowers who have income but cannot document it through traditional employment verification methods.
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A self-employed borrower wants a mortgage from a federally regulated bank without mortgage default insurance. Under the Bank Act, the insurance requirement applies when the down payment is less than what share of the property's value?
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