Are you worried about calculating the commission income for a mortgage loan? Let’s discuss it in detail.
Income qualification is one of the influential aspects needed when you are applying for a home loan. So getting to know how lenders calculate your income can be substantial for your loan application. Calculating the commission income for a mortgage loan of workers and the self-employed is a bit complex procedure.
If you are a self-employed or a commission-based earner, that does not mean you cannot get a home loan. It just means that you have to understand what factors lenders do consider before approving a home loan.
Calculating Commission Income for a Mortgage Loan
The majority of Lenders assume that the borrower will continue their repayment at the same level in the future.
Lenders also consider borrower’s monthly commission income for a mortgage loan over the past two years so that they can examine affordability regarding future mortgage payments.
If someone has inconsistent income, that means they can face difficulty getting qualified for a mortgage loan.
Meet the Requirements for Commission Earners
The guidelines for Commission-based and Self-employed are similar.
First, you need a recent work history to secure this loan. Commission-based earners should be on the job as commission wage earners for two years to apply for a mortgage.
Second, you will have to prove that your income is consistent enough to bear the monthly mortgage premium without difficulty.
Keep in mind that if your income history shows that your income is declining or you are a newbie at your job, you might have a tough time getting approved based on commissions.
Types of Mortgages for Commission Earners
Commission-based earners have the liberty to apply for every type of home loan as other borrowers.
The following are the four types of home loans:
Conventional Loans
This type of loan requires two years of commission-based income history. One of the following is the essential document needed for a conventional loan:
- Recent pay stub and IRS W-2 form covering the last two year period
- Completed request for verification of employment (form 1005)
FHA Loans
The FHA mortgage program is more sparing about commission income for a mortgage loan; a loan may be approved to a borrower based on the one-year history of commission earnings.
A mortgage borrower gets the FHA loans if his income is at least one year in the same or similar line of work, and the income’s graph shows that it will continue with the same intensity.
The Federal Housing Administration will evaluate commission income for a mortgage loan by using the following criteria:
- The average commission income earned over the last two years in the field of commission income earned
- The length or duration of commission income earned if it is less than two years; or
- The average commission income earned over the last year.
VA Loans
The policies of the Department of Veterans Affairs are stricter than FHA. If you want to apply for the VA Loan as a strong applicant, your commission income history should be consistent for at least two years.
USDA Loans
Your lender will evaluate the commission income for a mortgage loan of the current pay period and YTD earnings for USDA Loans.
An increase or decrease of 20 percent in income from the last twelve months must be evaluated and noted before determining the income is stable and dependable.
How Many Mortgages Can You Get?
If you have earned at least two years of commission-based income and have a stable financial history, your mortgage approval could be passed.
Commission income for a mortgage loan is not the only determining factor, but the loan officer will also evaluate the following:
- Credit score
- Credit history
- Debt to Income Ratio
- Down Payment
- Bank Payment
- The value and condition of the home
If you are scared off because you belong to the 5% of the population working on commission-based, do not worry about it. Contact us to ask for the best possible outcome to help your application with commission income for a mortgage loan.
