Commission Income and Mortgages

How does a commission-based income affect a mortgage?  Everyone’s situation is unique, and not all of us fit into the standard mortgage qualifying box. It happens all the time where someone builds up the nerves to venture from an hourly or salaried position into a full commission income job.  Often, if the person is good at what they do, the income potential can be much higher than a salaried job.  But then you find out the negatives when you are considering a mortgage to purchase or refinance a home after becoming commissioned sales…

When shopping for a home, most realtors want to see you get pre-qualified for a loan or have the cash on hand to purchase. This saves them from potentially wasting time and energy showing homes to someone who couldn’t purchase a property when it came time to close. To be pre-qualified for a standard loan, you need documentable income, a decent credit score, and you must meet specific debt to income ratios. But, what do you do if you don’t fit the system, rent forever?

Lenders love clients that are on a salary income because it’s much easier to verify the income for Fannie Mae, Freddie Mac or FHA. When you’re on a commission income it gets a little trickier, because there’s a bit more story to tell underwriting and possible documentation needed to back it up.

For most of the major financial services, you’ll need a history of your commission income that goes back two years. A lot of mortgage programs have the standard requirement of a 2-year history of receiving commission income.  This will be shown through verification with the employer, signed tax returns and recent pay stubs. These documents will prove that this method of payment has been consistent and will continue in the future. This is done to document the likelihood that this income will continue, and you’ll be able to afford your monthly payments.

But, what if you don’t have 2 years of history?  FHA and a Conventional loan will potentially allow a borrower to have commission income verified for a minimum of 12 months.  While the 2-year rule is pretty standard, there are lenders (like FHA) who will give some wiggle room if you’re under the 2-year mark.

FHA typically wants two years as well, but they will consider as little as one year with substantial compensating factors. For instance, making a large down payment,  that’s not to say that you’d have to put down a large down payment to be considered a compensating factor, but the more you can prove your strength as a borrower to underwriting, the better your chances of approval are.

Yes, it is easier to get an approval for a mortgage on a salary, but it’s good to know that there are guidelines and options for different incomes. Additionally, since it’s not as cut-and-dry as a salary, you’re going to need some help from experts.  Call us today to discuss the range of loans we offer to accommodate your situation with a complete line-up of loan products.

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