How Does Incorporating My Business Affect My Mortgage?
Renee Huse, founder of Spire Mortgage Team in Alberta, has helped many self-employed Canadians navigate the wild ride of changing how they earn—and what it means for borrowing power.
If you’ve just incorporated your business or are thinking about it, you’re probably asking: will this mess up my mortgage plans? You’re not alone. We see this all the time, and with the right plan, you can absolutely get where you want to go.
What we’ll cover:
- Why incorporation changes how lenders see your income
- Real Canadian case study: HVAC contractor’s rocky year
- Salary vs dividends: what lenders prefer
- Should I wait to incorporate until after I buy?
- What underwriters really look for in incorporated files
- Red flags that hurt borrowing power
- What if I need to refinance while newly incorporated?
- How to stay “mortgage-ready” while growing your business
- Glossary of key mortgage terms
- FAQs for incorporated borrowers
Why incorporation changes how lenders see your income
When you incorporate, you're no longer personally earning business income—you’re now the shareholder of a company. And that company pays you—whether in salary, dividends, or a mix of both.
From a lender’s point of view, this means you’ve taken a step further away from “traditional” employment. They now want to understand how you’re compensating yourself, how stable that structure is, and whether it’s consistent over time.
And here’s the hard truth: if you made multiple changes in the same calendar year—like employee to sole proprietor to incorporated—the file gets confusing. Lenders like tidy income stories. Anything that raises questions about how you’re paying yourself can lead to delays or a decline.
Alberta Case Study: The HVAC Contractor Who Changed Too Fast
One of our clients—we’ll call him Steve—ran a successful HVAC company in Calgary. In a single year, Steve moved from being a W‑2 employee, to running a sole proprietorship, to finally incorporating his business.
On paper, it looked like chaos. He had three different income types showing up in one tax year, with no consistent pattern. When Steve came to us for a mortgage, we couldn’t get an A lender to sign off—despite solid earnings. Why? Too much change, not enough clarity.
We placed him with a B lender temporarily. The rate was higher (around 5.49% on a 5‑year fixed at the time), but it bought us time to build a track record. Once he had a full tax year under his incorporated structure, with clear salary draws, we were able to switch him back to an A lender at a much lower rate.
Key takeaway: If you’re going to incorporate, commit to it. Decide early how you’re going to pay yourself, and stick with it.
Salary vs Dividends: Which do lenders prefer?
If you're incorporated, your next big decision is how to draw income. Lenders care deeply about this because it's how they calculate what you qualify for.
| Income Type | Pros | Cons | Qualifying Impact |
|---|---|---|---|
| Salary | Predictable, easy to verify with T4s | Higher personal tax | Lenders love it. Strongest for mortgage approval |
| Dividends | Lower personal tax, flexible | Harder to prove consistency, variable | Some lenders use 100%, others only 50–85% of income |
| Mix | Balanced cash flow | Complex paperwork | Case‑by‑case lender approval |
Should I wait to incorporate until after I buy?
This is one of those questions that rarely gets asked up front—but we wish it did.
If you're early in your self‑employed journey and know a purchase or refinance is coming, it may make sense to stay a sole proprietor until the deal is done. Why? Because lenders are already used to how sole proprietor income shows up. If you've been filing that way for two years, you’re mortgage‑ready. Incorporating resets the clock.
We’re not saying don’t incorporate—just time it strategically. If the house hunt is happening in the next 12 months, let’s talk first.
What do lenders really look at when you’re incorporated?
It’s not just your personal income anymore. Lenders now want to see:
- Two years of corporate financials, ideally with a Notice‑to‑Reader prepared by an accountant
- Your personal T1 Generals (tax returns), showing how you pay yourself
- A pattern in income type: consistent salary or dividends, not bouncing between the two
- A clean corporate structure: ideally, no personal expenses buried in the books
- No late tax filings or messy bookkeeping
And here's a little insider tip: the more organized your financials are, the more confidence the underwriter has in you. We’ve seen files get approved on strong retained earnings alone—because the books were airtight.
Red Flags That Hurt Borrowing Power for Incorporated Clients
- Switching income types mid‑year (e.g., half salary, half dividends, no clear pattern)
- Corporate losses on paper, even if you’re doing well in real life
- Personal expenses buried in corporate write‑offs (think: trucks, cell phones, meals)
- No formal financials (like not having a proper Notice‑to‑Reader prepared)
- Late tax filings—CRA arrears are a huge no‑go for A lenders
What if I need to refinance while I’m newly incorporated?
Life doesn’t always wait for your two‑year tax history to mature. Sometimes you need to refinance—whether to consolidate debt, pull equity, or handle an unexpected expense.
If you've just incorporated and don’t yet have that clean track record, we often look at:
- A B lender, short term (1–2 years), while you build qualifying income
- Using corporate financials + retained earnings if your personal draws are low
- If you’re still in your first year post‑incorporation, possibly qualifying under your last full year as a sole proprietor, depending on timing and lender
How to stay “mortgage‑ready” as an incorporated business owner
- Talk to your accountant and broker at the same time. Your accountant’s job is to minimize tax. Our job is to help you qualify for your goals. Sometimes those conflict. Aligning early saves heartache.
- Don’t change income strategies mid‑year. Switching from salary to dividends in June muddies the waters. Lenders want two years of consistency, or at least one clean year.
- File your taxes on time and keep them clean. Late filings, losses, or messy bookkeeping? All red flags. You don’t need massive profits, but you do need professional documentation.
- Keep a paper trail for retained earnings or owner draws. Some lenders will “gross up” your qualifying income if it’s clear you’re leaving profit in the company. But that’s only possible with proper books.
Glossary
Incorporated Business: A legal structure that separates the business from the individual owner. Often done for tax planning or liability protection.
Sole Proprietor: A self‑employed person who reports income directly on their personal tax return, without a separate legal business.
Salary: Income drawn from the corporation, typically with T4 slips and payroll deductions.
Dividend: A payout from corporate profits to shareholders, reported on a T5. Often taxed at a lower rate than salary.
B Lender: A lender who works with clients who don’t fit traditional bank guidelines. Higher rates, but more flexibility.
A Lender: Major banks and credit unions with strict income and credit rules.
Notice‑to‑Reader: A type of financial statement prepared by an accountant. Lenders often require this when reviewing corporate income.
Qualifying Income: The amount a lender uses to determine how much you can borrow. May not match your gross income exactly.
Gross‑Up: A method of inflating reported income for qualifying purposes, often used for non‑taxable or retained earnings.
Retained Earnings: Profits left in the corporation rather than paid out. Can sometimes be factored into income with proper documentation.
FAQs
Can I qualify for a mortgage right after I incorporate?
It depends. Most A lenders want to see two full tax years under your new structure. But some flexible lenders may work with one year if your income is strong and consistent.
What if I’ve already changed income types mid‑year?
Don’t panic—but do pause. Talk to us before you file your taxes. We may be able to find a workaround or place you with a short‑term B lender.
Do lenders prefer salary or dividends?
Most prefer salary because it’s easier to verify and consistent. But we work with lenders who accept dividends too—it just requires clean, consistent reporting.
Can I use retained earnings or corporate assets to qualify?
Yes, in some cases. But you’ll need a lender who understands business structures, and you’ll need solid accounting to back it up.
What’s the fastest path back to an A lender if I’ve incorporated?
Get one full year of clean corporate income, file on time, and document how you pay yourself. Then we reassess and re‑qualify.
Final Thoughts
Incorporating your business can be a smart move for tax planning, liability, and long‑term growth—but it adds layers when it comes to mortgage planning.
That’s why we always say: bring us in early. A quick conversation with your mortgage team before you switch income types can save you thousands in rates and frustration.
Give us a call or fill out an application at this link: https://spiremortgage.ca/apply-now and our team will get in touch with you to start building a plan that suits you.
