How to get pre-approved while being 100% commission based.

Question

My current role is 100% commission based and has been since the end of September ‘21. Prior to this it was part time work as i was transitions & training fter graduating from college. I now have a territory that covers all of Upstate NY and Northeast NY which results in a lot of daily travel. I have the funds to use an FHA and house hack A multi-family unit. Due to my travel, my thoughts were to purchase a triplex on one half of my territory, claiming residency, while also maintaining my current apartment in the other half of my territory.

However, almost every loan officer i have spoken with has told me I can not purchase a home any time soon due to the “lack of two years proof of commission only income”. Any advice or guidance would be greatly appreciated!

Josh Edwards · Answer

Hey Brady,

A 12 month Bank Statement program would be great for your situation. It will come with a larger down payment requirement (usually 10%), but can qualify you off of the deposits into your bank account rather than tax returns. If you have any questions feel free to reach out!

Galen Ikonomov · Answer

What the Loan Officers told you is true.

I would look into Non-Qm products such as what @Josh Edwards mentioned. Non-QM is any other product outside of the Conventional, FHA, VA, USDA, FHA loans.

Reach out to Non-Qm lenders here and have a conversation with them about your plans. Good luck

Andrew Postell · Answer

@Brady D'Hont see how many different responses you have here?  That's what it's like when you are just a "little" different than an "average" person.  Most rules are written for the "average" person and those of us who aren't "average" have to find lenders on our own. I am also 100% commission and even I cannot qualify for some loans for a time if I change jobs.

To me, I would suggest looking for "mortgage brokers" in your area.  A broker represents many lenders.  A broker should have access to many different loan types and usually a broker is more attuned to help those who are "different" than others.  So if one lender says one thing, a broker should be able to take you to a different lender without you even knowing about it.  Questions like "was your previous employer commission" and "what is your 12 month commission average" will need to be answered.  So if your average is very low....you may not be able to "afford" two housing expenses.  As mentioned above there are loans that don't require any of this.  Some don't require income at all.  But the more a loan type ignores, the more you pay for it in downpayment or rate.

Anyway, hope all of this helps in some way.  Thanks!

David A Lisowski · Answer

@Brady D'Hont

Commission income will require a 2-year history to be considered stable.

It will be averaged over two years also. So if 2022 only has 3 months of commission income, using a 2022 and 2023 average would not be as beneficial to you as using the 2023 and 2024 average (assuming you earn the same or more commission each year).

So you are looking at qualifying in 2024 at the earliest. Qualifying in 2025 will give you two full years of commission (better average, ideally).

Yes, there are other loan options available, but most would be tailored to a true S/E borrower. You are just commission-based W2 so those options might not be available to you.

Trevor Alexander · Answer

For an FHA loan, most Lenders will say you need 24 months commission income minimum to qualify. But the FHA guidelines technically say you can do 12 months average with a 2 year work history. Might be hard finding a Lender willing to do this, though.

For a Conventional loan, a Lender with no overlays can qualify you with 12 months commission income with other positive factors (low DTI, high credit, higher down payment, etc). Fannie prefers 24 months, but 12-24 months is still acceptable. The Lender may just take your 12 months and average it over 24 months to be conservative.

However, Conventional will require 25% down on a multi-unit purchase.

Another option is to have your employer switch you to salaried for now - you’ll qualify right away with 30 days stubs on your salaried income.Beyond that, like the other folks said - you’ll need to go non QM.

Hope that helps. Feel free to shoot me a message if you have any questions.

Jay Hurst · Answer

@Brady D'Hont    Ok, the above mentioned bank statement loans are for self employed borrowers which if you are W-2 you are not. HOWVER, you can potentially get an FHA loan with over 1 year commission but less then two years.  see the below snip and link from where it came from, the FHA handbook which is THE source, as the FHA of course makes the rules for FHA loans.  It is not easy to get it done so you would need to find a lender who will dig in, but it is technically possible from the FHA perspective.

FHA handbook on commission income

Jay Hurst · Answer

@Brady D'Hont    Are you considered self employed (receive a 1099) or are you an employee that happens to be commissioned? (do you receive a w-2)

Brady D'Hont · Answer

Erik, Thanks for the response. It makes a lot of sense to do that but have heard the refi process into conventional can be costly… What’re your thoughts on having a co signer to show 2+ years of income? Are they then linked to the agreement for good? Something i have not looked into, more so spitballing ideas.

Erik Estrada · Answer

Go with a 12-month bank statement program. Rates are higher and down payment requirement is higher than going FHA but once you reach the 2 years of employment history you can refi into a conventional.

How to get pre-approved while being 100% commission based.

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