Abstract Improving the use of Type Ia supernovae (SNe Ia) as standard candles requires a better approach to incorporate the relationship between SNe Ia and the properties of their host galaxies. Using a spectroscopically confirmed sample of ∼1600 SNe Ia, we develop the first empirical model of underlying populations for SNe Ia light-curve properties that includes their dependence on host-galaxy stellar mass; we find a significant correlation between stretch population and stellar mass (99.9% confidence) and a weaker correlation between color and stellar mass (90% confidence). These populations are important inputs to simulations that are used to model selection effects and correct distance biases within the BEAMS with Bias Correction (BBC) framework. Here we improve BBC to also account for SNe Ia-host correlations, and we validate this technique on simulated data samples. We recover the input relationship between SNe Ia luminosity and host-galaxy stellar mass (the mass step, γ) with a bias of 0.004 ±0.001 mag, which is a factor of 5 improvement over previous methods that have a γ bias of ∼0.02 ± 0.001 mag. We adapt BBC for a novel dust-based model of intrinsic brightness variations, which results in a greatly reduced mass step for data (γ = 0.017 ± 0.008) and for simulations (γ = 0.006 ± 0.007). Analyzing simulated SNe Ia, the biases on the dark energy equation of state, w, vary from Δw = 0.006(5) to 0.010(5) with our new BBC method; these biases are significantly smaller than the 0.02(5) w bias using previous BBC methods that ignore SNe Ia-host correlations.