🧮 How Lenders Calculate Income for Commission-Based Borrowers 🏦

💼 Commission Income & Mortgages: What Lenders Really Look At 🔍

How Lenders Calculate Income for Commission-Based Borrowers

For many professionals—sales reps, realtors, consultants, and others—commission income makes up the bulk of their earnings. While this structure can be rewarding, it also comes with unique challenges when applying for a mortgage. Unlike W-2 employees with predictable salaries, commission-based borrowers must show lenders stability and consistency before qualifying for home financing.

Why Lenders Scrutinize Commission Income

Commission income can fluctuate month-to-month or year-to-year. Because of this, lenders want to ensure that the borrower has a reliable track record of earning commissions and can sustain mortgage payments even during slower months.

The Two-Year Rule

Most lenders require a minimum of two years’ history of commission income to qualify. This provides a baseline average for income calculations. If you’ve been with the same company or industry for a consistent two-year period, that strengthens your case significantly.

Income Calculation Methods

Here’s how lenders typically calculate qualifying income for commission-based borrowers:

1.      Two-Year Average – Lenders add up your commission income from the past two years, then divide by 24 months to get an average monthly income.

2.      Declining Income Adjustments – If your most recent year shows a decline, lenders may use the lower year or request additional documentation to prove sustainability.

3.      Verification of Employment (VOE) – Lenders often verify with employers whether commission income is expected to continue.

4.      Tax Return Review – Lenders examine your IRS tax returns, focusing on net taxable income after write-offs and deductions.

Documentation You’ll Need

To qualify, commission-based borrowers should prepare to provide:

·         Two years of tax returns (including Schedule C if self-employed)

·         W-2s or 1099s (if applicable)

·         Year-to-date pay stubs or commission statements

·         Bank statements to verify deposits and cash flow

Pro Tips for Commission-Based Borrowers

·         Avoid excessive write-offs. While tax deductions lower taxable income, they can also reduce your qualifying mortgage income.

·         Stay consistent. Switching industries or job types can reset the two-year requirement.

·         Work with a mortgage broker. Brokers can match you with lenders who are flexible and experienced with commission-based borrowers.

The Bottom Line

Buying a home as a commission-based professional is absolutely possible—but preparation is key. By keeping thorough records, maintaining steady earnings, and working with the right mortgage advisor, you can put yourself in the best position to qualify for a mortgage and secure the home you want.

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© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory