Can a Realtor Use Commission as Down Payment on a Home

Check out this success story and it is a little known advantage for licensed Real Estate Agents.  Actually a Realtor commission may be used as down payment for the purchase of their own home.  Although normally lenders are required to prove down payment in the buyer’s bank account.  So if underwriters require proof of funds in the bank, how can Realtors use commission which isn’t paid until after the loan closing?

How Can I Use My Realtor Commission to Buy My House?

Here is an actual example.  A real estate agent went under contract to purchase a new construction home.  Based on the purchase price, the loan was at the top of the FHA loan size limit (See the 2017 FHA Limits).  Keep in mind the agent did not have the full 3.5% down payment required for FHA loans.  Therefore the agent asked “Is there a way I can use my commission from this sale as my down payment?”.  Well, yes there is!  So do the quick math with a 2.5% buyer agent commission paid.  Ultimately this left the agent only needing 1% down payment after crediting the commission!

Realtor commission used for down paymentAnother option which could have been used is the Home Advantage Down Payment Assistance program.  It is offered by the NC Housing Finance Agency or SC Housing.  Along with the commissions used as down payment, the DPA could have both covered the full down payment!

FHA Guideline: Acceptable source of funds for down payment

Real Estate Commission from Sale of Subject Property refers to the Borrower’s (i.e., buyer’s) portion of a real estate commission earned from the sale of the property being purchased.  Lenders may consider Real Estate Commissions from the Sale of the Subject Property as part of the Borrower’s acceptable source of funds.  The borrower must be a licensed real estate agent.

Realtor Commission as Down Payment on Conventional Loan

Not only will FHA allow commission as down payment, but a Fannie Mae loan will too.  So for higher credit scores and/or higher down payments, a conventional loan could make more sense.  Fannie Mae loans require 3% or more down payment.  If there is a 20% down payment, there is no mortgage insurance required.

Keep in mind that with either loan type, underwriting will required a signed letter from the real estate agency stating the exact portion of commission is received by the agent for the transaction.  This amount must then match the closing disclosure.

Not only could we help a real estate agent buy a home, we also offer unparalleled service for your buyers.  So learn more about our team of loan officers, our line of products, and process.  See Mortgages Redefined!

 

Author: Russell Smith

Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.