May 13, 2015
A reader asks, “With commission income can a person be at one job for about a year and then move to a different employer but same line of work and still commission type pay and be there for a year qualify? Can the 2 years be from different employers?”
This scenario would be handled on a case-by-case basis by the lender for several important reasons. The lender will need to determine if the commission income is likely to continue, for starters, and also insure that the amount of commissions has not decreased.
FHA loan rules in HUD 4155.1 state:
“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.”
That puts the burden on both the borrower (to provide evidence that satisfies the above requirements) and the lender (to insure that the above requirements will be met). Since the lender must document the commission income and show that it’s likely to continue, there’s no way to say in a one-size-fits-all manner whether a particular loan applicant’s commission income may or may not be approved.
Where commission duration is concerned, FHA loan rules don’t say anything in the passage below about changing employers, but rather spells out a minimum duration of time the commission income must be earned:
“Commission income earned for less than one year is not considered effective income. Exceptions may be made for situations in which the borrowers compensation was changed from salary to commission within a similar position with the same employer. A borrower may also qualify when the portion of earnings not attributed to commissions would be sufficient to qualify the borrower for the mortgage.”
Speak to a loan officer to see how your specific situation may or may not fit the standards mentioned here.
Do you have questions about FHA refinance loans or FHA new purchase loans? Ask us in the comments section. All comments and questions are held for moderation.
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.
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