Many incorporated business owners and contractors earn strong incomes but feel uncertain when applying for a mortgage. This uncertainty often comes from how income is structured rather than how much is earned. Dividends, retained earnings, and contract income can all affect how lenders assess mortgage eligibility.
This guide explains how mortgages work for incorporated business owners and contractors in Canada, how lenders review different income types, and what to consider before applying.
Why Incorporated Borrowers Are Assessed Differently
When income is earned through a corporation or contract work, it may not appear on a traditional pay stub. Lenders need to understand where income comes from, how stable it is, and whether it can support long-term mortgage payments.
Key differences include:
- Income paid through dividends instead of salary
- Earnings retained inside a corporation
- Contract-based income rather than permanent employment
These factors require additional documentation but do not prevent mortgage approval.
Common Income Structures for Incorporated Borrowers
Salary (T4 Income)
Some incorporated owners pay themselves a salary. This income appears on a T4 and is treated similarly to salaried employment.
From a lender’s perspective, T4 income is:
- Easy to verify
- Predictable
- Often preferred
However, salary may be lower than total business earnings due to tax planning.
Dividends (T5 Income)
Many incorporated owners pay themselves through dividends. Dividend income can still be used for mortgage qualification, but lenders often require:
- A history of consistent dividends
- Confirmation that the business can sustain them
Dividend income may be averaged over two years, similar to other self-employed income.
Retained Earnings
Retained earnings remain inside the corporation and are not paid personally. While they increase business value, they are not always considered personal income.
Some lenders may review retained earnings to understand business strength, but they usually do not count directly toward qualifying income unless funds are drawn.
Mortgage Qualification for Contractors
Contractors often earn income through fixed-term contracts rather than permanent employment. Lenders typically assess:
- Length of time contracting
- Industry stability
- Contract renewal history
Longer contracting history and consistent income improve qualification options.
Required Documents for Incorporated Borrowers
Lenders commonly request:
- Personal Notices of Assessment
- Corporate tax returns
- Financial statements
- Proof of business ownership
Clear documentation helps lenders understand income flow and stability.
Bank Mortgage Options
Banks usually prefer:
- T4 salary income
- Consistent dividend history
- Two years of documentation
Bank mortgages can work well when income is structured clearly and reported consistently.
Alternative (B-Lender) Options
B-lenders may:
- Accept flexible income structures
- Consider bank statements
- Be more understanding of dividend income
They often provide practical solutions when banks decline.
Private Mortgage Options
Private lenders focus primarily on:
- Property value
- Available equity
They may be used when documentation is limited or timing is urgent, often as short-term solutions.
Planning Your Mortgage Strategy
Incorporated borrowers often benefit from planning ahead. This may include:
- Adjusting how income is paid
- Timing applications after strong business years
- Using short-term solutions with a refinance plan
Understanding lender expectations early can reduce delays and stress.
Common Challenges to Watch For
Incorporated owners and contractors may face issues such as:
- Low personal taxable income
- Inconsistent dividend payments
- Short contracting history
These challenges can often be addressed with the right lender and preparation.
Final Thoughts
Mortgages for incorporated business owners and contractors are achievable with the right approach. Lenders want clarity, consistency, and a realistic picture of how income is earned and sustained.
Understanding how different income structures are reviewed allows borrowers to approach the mortgage process with confidence.
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