April 8, 2015
A reader asks, “If a job has a base pay plus commission on a set sales route, does that have to viewed as a commissioned/self-employment job requiring Tax returns?”
Let’s examine the rules for commission income as printed in HUD 4155.1, Chapter Four Section D. Under the section heading titled, “Salary, Wage, and Other Forms of Income”, we learn the following about commission income:
“Commission income must be averaged over the previous two years. To qualify with commission income, the borrower must provide
• copies of signed tax returns for the last two years, and
• the most recent pay stub.”
Furthermore, the FHA loan rules in this section address the nature of commission income–how successful is the FHA loan applicant in this area? That is an important factor as we learn in Chapter Four:
“Commission income showing a decrease from one year to the next requires significant compensating factors before a borrower can be approved for the loan. 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.”
Note that the FHA loan rules here do NOT say these rules apply to one type of commission income but not another.
The answer to the reader’s question in this case is that if you want your commission income counted as part of your overall debt-to-income ratio, you will need to furnish the documentation required which can include tax forms from the last two years or more depending on the lender’s standards.
Do you have questions about FHA loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: