Podcast
Questions and Answers
What is the primary goal when verifying income?
What is the primary goal when verifying income?
Which type of lender relies on the Agent or Broker to verify employment?
Which type of lender relies on the Agent or Broker to verify employment?
Why is it crucial to document employment verification?
Why is it crucial to document employment verification?
Under which circumstances is employment verification particularly important?
Under which circumstances is employment verification particularly important?
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What should you do if you cannot verify all of the borrower's income?
What should you do if you cannot verify all of the borrower's income?
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How do traditional and alternative lenders typically verify employment?
How do traditional and alternative lenders typically verify employment?
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What is one of the requirements to be considered self-employed?
What is one of the requirements to be considered self-employed?
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What do lenders want to determine about a self-employed individual's business?
What do lenders want to determine about a self-employed individual's business?
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What is the minimum number of years of financial statements required for self-employed individuals?
What is the minimum number of years of financial statements required for self-employed individuals?
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Why do some private lenders not worry about income confirmation?
Why do some private lenders not worry about income confirmation?
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What is the minimum number of shareholders required for a MIC?
What is the minimum number of shareholders required for a MIC?
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What is the purpose of reviewing a client's credit report?
What is the purpose of reviewing a client's credit report?
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What do lenders consider the most accurate indicator of ability and willingness to repay a loan?
What do lenders consider the most accurate indicator of ability and willingness to repay a loan?
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What is the maximum percentage of a MIC's capital that can be held by one shareholder?
What is the maximum percentage of a MIC's capital that can be held by one shareholder?
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What type of lending is characterized by not worrying about income confirmation and having a higher interest rate?
What type of lending is characterized by not worrying about income confirmation and having a higher interest rate?
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What type of assets must make up at least 50% of a MIC's portfolio?
What type of assets must make up at least 50% of a MIC's portfolio?
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Why do private lenders focus on the property's value in equity lending?
Why do private lenders focus on the property's value in equity lending?
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Up to what percentage of its assets can a MIC invest directly in real estate?
Up to what percentage of its assets can a MIC invest directly in real estate?
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How does a MIC distribute its net income to shareholders?
How does a MIC distribute its net income to shareholders?
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What is the tax status of a MIC corporation?
What is the tax status of a MIC corporation?
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How are dividends received from MIC shares taxed in the hands of individual shareholders?
How are dividends received from MIC shares taxed in the hands of individual shareholders?
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What type of investments can MIC shares be used for?
What type of investments can MIC shares be used for?
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Study Notes
Income Verification for Self-Employed Individuals
- To be considered self-employed, at least one of the following must apply: has an ownership interest in a company and is paid based on company performance, has an ownership interest in a business of 25% or greater, is paid 100% on commission, is considered an owner/operator, or is employed by an immediate family member
Lender Requirements for Self-Employed Individuals
- Lenders want to determine that the business is viable and can support the applicant's income level in the future
- Lenders want to verify that the income being generated is regular and continuous
- Independent verification of the financial information is required
- Income must be realistic given the type of business, experience, and ability of the borrower compared to other similar businesses in the market
- Financial statements are required to determine whether a self-employed individual can provide a recurring stream of income
- At least two years of financial statements are required, but ideally three to five years
- Some private lenders may not worry about income confirmation, which increases the interest rate and risk
Analyzing the Credit Report
- The credit report is an accurate indicator of ability and willingness to repay
- Verify income to determine the total amount earned and the borrower's ongoing ability to repay the mortgage, other debts, and living expenses
Income Documentation for Employed Individuals
- Lenders will call the applicant's employer directly to verify the provided information
- Private lenders rely on the Agent or Broker to perform the task of confirming employment
- Record the name of the individual verifying the information, along with the date, time, and confirmed information
- This is particularly important when the employment length is less than one year, the borrower is employed hourly with no agreed-upon monthly or annual minimum hours of work, or income levels appear high in relation to age, experience, or type of employment
Characteristics of a MIC
- A MIC must have at least 20 shareholders
- No shareholder may hold more than 25% of the MIC's total capital
- At least 50% of a MIC's assets must be composed of residential mortgages and/or cash and insured deposits at Canada Deposit Insurance Corporation member financial institutions
- A MIC may invest up to 25% of its assets directly in real estate but not develop land or engage in construction
- A MIC is a flow-through investment vehicle that distributes 100% of its net income to its shareholders
- All MIC investments must be in Canada, but a MIC may accept investment capital from outside Canada
- A MIC is a tax-exempt corporation
- Dividends received on directly held shares are taxed as interest income in the shareholder's hands
- MIC shares are qualified RRSP and RRIF investments
- A MIC may distribute income dividends and capital gain dividends
- A MIC's annual financial statements must be audited
- A MIC may employ financial leverage by using debt to partially fund assets
Trust
- A trust involves a pool of investors
- Each investor buys units and receives payments once per month
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Description
Determine if an individual is considered self-employed based on their work arrangement. Quiz covers various scenarios including ownership interest, commission-based pay, and family employment.
