April 14, 2015
A reader asks, “What if a person went from a commission based job as a loan officer to a salary plus commission job as a Mortgage Loan Manager? Would the salary still be averaged over 2 years?”
This question is in reference to an earlier post we did back in 2013, which was titled, “FHA Loans and Commission Income: A Reader Question”.
In that blog post, we answered a reader who asked us, “Is it true that if you work in a job where your pay is based on commission you have to be with your current employer for at least one year to obtain a FHA loan, even if your prior job was in the same line of work and was also a commission paying job?”
The answer we gave back then is also relevant to this reader’s question. Specifically:
HUD 4155.1, Chapter Four Section D has a section titled, “Salary, Wage, and Other Forms of Income”. For commission income, FHA loan rules instruct the lender as follows:
“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.”
The rules add that a borrower who has commission income that was paid 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.”
The rules also say that commission income that has not been earned for more than a year, “is not considered effective income.” However, exceptions may be possible “in situations in which the borrower’s 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.”
For additional clarification you may need to speak to a loan officer because lender standards can also play a big part in determining what is possible with an FHA loan in these circumstances.
Do you have questions about FHA loan rules? 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.
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