Commission income comes with the ability to make more income. Yet, this form of income usually comes with fluctuating ups and downs. Which is why mortgage loan guidelines want to see a history. Usually a minimum 2 year history for commission or bonus income. Even though many lenders require two years, we follow the FHA commission income guideline which allows less than a 2 year history! Whether a sales person, sales manager, truck driver, Realtor, loan officer, timeshare sales, or other form of commissioned sales, our FHA loan products allow as little as a one year history.
Buying a House with FHA Commission Income Guidelines
So, you have chosen a commission sales career and maybe even recently. When commissions are involved, FHA commission income guidelines require the following:
- Average the last 2 years of commission income
- If received commission income less than 2 years, average at least the last 12 months
- At least 2 years of employment history must be documented, although not required in the same line of work or commission
Too often, the second part of this guideline is not allowed. Therefore if borrowers have less than 2 years of commissions, they have to wait. But for borrowers who meet FHA credit and asset requirements, FHA commission income rules are fortunately more flexible than you think. Thus, as little as 12 months of income could be used to qualify.
How Much Down Payment is Required with One Year Commission Income?
One would think a higher down payment is required for these guidelines. Even though FHA allows just one year of commission income, the minimum 3.5% down payment is still the same. Actually, this down payment may even come from gift funds. Furthermore, buying a HUD foreclosure could mean as little as $100 down payment. So if a buyer is able to meet credit, income, and this low down payment requirement, buying a home is very possible.
How Lenders Calculate Commission
If you are paid commission income and it is less than 2 years history, here is what we would use to figure income.
Items needed to average income correctly:
- Most recent pay stubs for 30 days
- Helpful for year end pay stub for 2 most recent years
- Last 2 years tax returns and W2’s
- Completed Verification of Employment (we have to request directly with employer
First, any salary could be used. Then if there is commission income, we figure how long it has been received. Also, the average needs to be calculated. So, the total commissions earned is divided by the length of time received. If greater than 2 years, then the last 2 years of commission are figured. If it has only been received between 12 months and 24 months, the income is calculated by averaging over the time it has been received.
For example: If commission has been received for 13 months, then the FHA commission income allowed would be an average of the 13 months.
Does this sound like your income or someone you know? Reach out to us so we can see if you qualify to buy a home.