How To Qualify For A Mortgage With Commission-Based Income

If you receive commission income, you can use it to qualify for a mortgage as long as the proper documentation is shared with your loan officer to verify the income. Before you begin your mortgage application, be sure to gather:

Two years worth of W-2s from your employer
Your most recent pay stub
One commission check from your employer
The documents above help your lenders verify that your commission income is consistent and will continue in the future. Income verification is an essential part of the mortgage qualification process because a lender must be able to confirm that you have the necessary funds to support your new monthly mortgage payment.

If you’ve recently accepted a new role with a commission-based salary, there are loan programs available (Fannie Mae and FHA) that will accept less than two-years worth of commission-based income. Check out our blog post titled, “Buying a Home With Under 2 Years of Commission Income” to learn more about this alternative option.

Each loan program has different guidelines for using commission-based income for mortgage qualification. The requirements for some of our loan program options are shared below:

Loan Program Guidelines for Commission Income
To qualify with commission income, the borrower must provide copies of signed tax returns for the last two years and their most recent pay stub.

Commission income must be averaged over the previous two years. When we look at the two-year history, the goal is to verify that there’s a stable history year-over-year.

A borrower whose commission income was received for more than one year, but less than two years may be considered favorably if the underwriter can document the likelihood that the income will continue and soundly rationalize accepting the commission income.

Unreimbursed business expenses must be subtracted from gross income.
A commissioned borrower is one who receives more than 25% of his/her
annual income from commissions.
A tax transcript obtained directly from the Internal Revenue Service (IRS)
may be used in lieu of signed tax returns, and the cost of the transcript may
be charged to the borrower.
Source: HUD 4155.1 4.D.2.g

Conventional Loan – Fannie Mae
A minimum history of 2 years of commission income is recommended; however, commission income that has been received for 12 to 24 months may be considered as acceptable income, as long as there are positive factors to reasonably offset the shorter income history.

One of the following must be obtained to document commission income:

A completed Request for Verification of Employment (Form 1005 or Form 1005(S)), or
the borrower’s recent paystub and IRS W-2 forms covering the most recent two-year period.
A verbal VOE is required from each employer. See B3-3.1-07, Verbal Verification of Employment, for specific requirements.
Source: Fannie Mae Selling Guide – B3-3.1-04, Commission Income (12/04/2018)

Conventional Loan – Freddie Mac
Two consecutive years of commission-based income (must be likely to continue for at least the next three years)
YTD paystub(s) documenting all YTD earnings, W-2 forms for the most recent two calendar years and a 10-day PCV or
Written verification of employment (VOE) documenting all YTD earnings and the earnings for the most recent two calendar years and a 10-day PCV
Source: The Single-Family Seller/Servicer Guide Section 5303.3 (d)

VA Loan
Verify commission income by obtaining the VOE or other written verification
which provides the following:

the actual amount of commissions paid year-to-date,
the basis for payments (salary plus commission, straight commission, or
draws against commission, or other), and
when commissions are paid bi-weekly, monthly, quarterly,
semiannually, annually, or other.
individual income tax returns, signed and dated, plus all applicable
schedules for the previous 2 years (or additional periods if needed to
demonstrate a satisfactory earnings record).
Source: VA Pamphlet 26-7, Revised, Chapter 4: Credit Underwriting, Section i

The Bottom Line
All in all, commission-based income requires a few extra steps for verification. If you’ve earned at least two years of commission-based income and a strong financial history, you should be on your way to mortgage approval.

If you have less than two years of commission-based income, it is still possible to qualify with the right loan program and other qualifying factors. Before ruling out any options, be sure to consult with a loan officer to see what steps are necessary to make your dream of homeownership a reality.

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