Business Owner Mortgages in Ontario
An incorporated business owner in Ontario is usually the most creditworthy borrower in the room and the hardest one to fit into a bank's template. You pay yourself in a mix of salary and dividends, leave profit in the company for tax reasons, and run legitimate expenses through the corporation. A branch reads that as low income. We read it as a balance sheet, and we place the file with lenders who do the same.
- Income sources counted
- T4 salary, dividends, shareholder loans, retained earnings, add backs
- Ownership threshold
- 25% or more of the corporation qualifies you as a business for self
- Documents
- Two years of corporate financials, T1s, NOAs, articles of incorporation
How lenders actually read an incorporated owner
Once you own 25% or more of a company, lenders classify you as business for self, no matter how conventional your pay looks. From that point the underwriting question stops being what did you earn and becomes what can this business sustainably pay you.
The lenders worth knowing will look past your personal return into the corporation. Retained earnings can be attributed to you as an owner. Dividends can be grossed up. Amortization, capital cost allowance, one time expenses, home office, vehicle and business use of personal assets can all be added back. Two owners with identical tax returns can end up with a $300,000 difference in approved amount purely on lender method.
- ◆Salary plus dividends combined and grossed up where policy allows
- ◆Retained earnings attributed by ownership percentage
- ◆Add backs for CCA, amortization and non recurring expenses
- ◆Shareholder loan repayments treated as income by select lenders
- ◆Business deposit averaging where corporate returns understate cash flow
Keeping the business and the mortgage out of each other's way
Business owners rarely need only a mortgage. You may want to pull equity for working capital, hold room on the operating line, or avoid a personal guarantee colliding with a commercial facility already in place. Those pieces should be planned together, because a lender that reviews your file annually can quietly complicate a future business borrowing.
We look at the full picture before recommending a structure: how much equity to access now against later, whether a readvanceable line belongs on title, and how the mortgage payment sits against your corporate cash flow cycle if your revenue is seasonal or contract based.
Timing around your fiscal year and tax filings
The single cheapest thing a business owner can do to improve a mortgage approval is time the application. A file submitted just after strong year end financials are prepared, with the matching Notice of Assessment in hand, qualifies on numbers a file submitted three months earlier simply could not use.
If a purchase is twelve to eighteen months out, tell us now. In many cases a modest adjustment to how you pay yourself for one tax year, coordinated with your accountant, unlocks prime lender pricing and more than pays for the extra tax.
Common Questions
Can I use retained earnings in my corporation to qualify for a mortgage in Ontario?
With several lenders, yes. If you own 25% or more of the company and the business shows consistent profitability, retained earnings can be attributed to you in proportion to your ownership and added to your qualifying income. It is one of the biggest differences between lenders and a common reason a bank declines a file we then approve.
Do dividends count as income for a mortgage?
Yes. Dividend income shown on your T1 over two years is accepted by prime lenders, and because it is not taxed the same way as salary, many lenders gross it up before applying their ratios. The result is usually a higher qualifying income than the raw number on the return.
How is a business owner mortgage different from a self employed mortgage?
They overlap heavily. Self employed usually describes a sole proprietor or contractor reporting income on their personal return, while business owner describes someone drawing from an incorporated company through salary, dividends and retained earnings. The corporation opens up more qualifying options, and more documentation.
Will the lender ask for a personal guarantee on my business debt?
Not for a residential mortgage on your home. Existing personal guarantees on business debt can appear in your credit profile and affect your ratios, so we address them in the application rather than letting an underwriter find them late.
Let us look at your file.
Blackwood Mortgage Partners works with clients across Ontario from our Toronto office. Call 416-990-3790 or book a time that suits you.
Other Services
Self Employed Mortgages
Business owners, incorporated professionals and contractors placed with lenders who read real financials, not just a T4.
Mortgage Renewal
The renewal letter is an offer, not a verdict. We shop the whole market before your maturity date.
Private Mortgages
Equity based first and second mortgages when the bank timeline or the bank rulebook does not fit.
Investment Property Financing
Rental, duplex and multi unit financing structured so the next purchase is still possible.