High Income Through Your Company, Low Personal Salary: Getting a Mortgage on Your Real Earnings

This file gets declined for the wrong reason, and it is solvable once you know which lender reads which document.

This is the file that most often gets declined for the wrong reason, and it is the most solvable once you know which lender reads which document.

The situation

You own a corporation. It is profitable. On your accountant's advice most of the profit stays inside the company, and you draw a modest salary or dividends personally.

The bank looks at line 15000 of your personal return, sees the modest number, and declines the mortgage. On paper you look like someone earning far less than you do.

You are not being assessed as a business owner. You are being assessed as an employee who happens to own a business, and those are different calculations.

What actually determines the outcome

Not your income. Which document the lender is willing to read.

Personal return only. The default. Your retained earnings are invisible. This is where the decline comes from.

Personal return plus corporate financials. A number of lenders will consider the corporation's net income or retained earnings, often with a letter from your accountant confirming the earnings could be distributed without harming the business. This is the route that changes most files, and it is the least well known.

Add-backs. Some lenders will add back specific non-cash deductions to your reported income: capital cost allowance and certain others, depending on the lender.

Business bank statement programs. Cash flow established from twelve to twenty-four months of deposits rather than from the return at all. Alternative-lender territory: higher rate, shorter term, useful as a bridge.

The difference between the first and second approach can be very large on the same file, with no change to your finances at all.

What to bring

Two years of corporate financial statements, ideally accountant-prepared. Two years of T1 and Notices of Assessment. Your notice of articles or registration confirming ownership percentage. A short letter from your accountant explaining the compensation structure and confirming the company can support a distribution.

That accountant letter is disproportionately useful. Underwriters read a lot of files and very few arrive with the structure explained in plain language by the person who built it.

Ownership percentage matters more than people expect

If you own 100 percent of the corporation, using corporate income is comparatively straightforward. If you own 50 percent with a partner, most lenders will only consider your share, and some become noticeably more cautious. If ownership is spread across a holdco and one or more operating companies, expect the file to need a clear organisational chart before anyone will underwrite it.

Two mistakes

Changing your compensation to fix the ratio. Paying yourself a large salary this year to make the return look better usually does not help, because most lenders want two years of consistent history. It also has a tax cost your accountant did not plan for.

Accepting the first decline as the market's answer. Lenders differ more on incorporated business-owner income than on almost any other borrower type. Being declined by your own bank, where you have banked for fifteen years, says very little about whether the file is fundable.

The plain version

If your business genuinely earns what you say it earns, there is very likely a lender that will lend against it at reasonable rates. The work is matching the file to the lender that reads corporate financials, and presenting the structure so an underwriter does not have to reconstruct it. ---

David H. Nataf is a mortgage broker licensed in Quebec by the Autorité des marchés financiers (AMF #3001986744), practising through Groupe Hypothécaire Orbis. He also holds an individual U.S. licence, NMLS #2613311 (Florida), for cross-border files.

This page is for information. Lender programs, rates, requirements and availability vary and can change without notice. Nothing here is tax, legal or accounting advice.