Commission Income Mortgage Rules in California (2026)

Commission income is one of the most common income types I see in Bakersfield: real estate agents, car and equipment salespeople, insurance producers, solar reps, and oil field sales. It qualifies for a mortgage, but lenders don't count it the way you'd expect. They don't use your best year or your current pace. They use an average, and they look hard at which direction it's moving.

How Do Lenders Calculate Commission Income?

The standard method is a 24-month average. Add up the commission on your last two years of W-2s (plus year-to-date commission if the lender is including it), divide by the number of months, and that's your qualifying commission. If you earned $80,000 in commission last year and $100,000 this year, your qualifying commission is about $90,000, or $7,500 a month. Any base salary is counted separately and qualifies right away.

How Much Commission History Do You Need?

Two years is the standard, but it is not the hard minimum most people are told. Fannie Mae allows commission income with as little as 12 months of history when the rest of the file is strong. FHA also allows commission received for at least one year but less than two, when the lender documents why it is likely to continue. With less than 12 months, the commission usually can't be counted, but your base salary still can. If someone told you that you need two full years, it's worth a second opinion.

What Happens if Your Commission Went Down?

This is the rule that costs commission earners the most. If your most recent year is lower than the year before, lenders generally won't average the two. They use the lower, more recent figure, and only if the income has stabilized. Earn $120,000 one year and $90,000 the next, and you qualify on $90,000, not $105,000. If the decline is steep or still continuing on your year-to-date pay stub, the lender may not count the commission at all until it levels off. A written explanation helps if the dip had a clear, one-time cause, like a product line discontinued or a medical leave.

W-2 Commission vs. 1099 Commission

If your employer pays your commission on a W-2, you are a commission employee, and the documentation is your W-2s and pay stubs. If you're paid on a 1099, like most real estate agents and independent insurance agents, you are self-employed for mortgage purposes. That means two years of tax returns, and lenders qualify you on net income after the business expenses you wrote off. A big write-off year lowers your qualifying income. If your tax returns don't show enough income, a bank statement loan qualifies you on deposits instead. More on that in the 1099 income guide.

Can You Change Jobs and Keep Your Commission History?

Sometimes. Moving from one commission sales job to another in the same line of work, at the same or a better pay structure, can carry your history over, although many lenders want to see a pay stub from the new job first. Moving from salary to commission is different: the new commission has no history, so you qualify on any base pay until you have at least 12 months. If you're planning a purchase, don't change your pay structure in the year before you apply.

Documents Commission Earners Need

Two years of W-2s, 30 days of recent pay stubs showing year-to-date commission, and often a written verification of employment that breaks out base and commission. Many lenders also want two years of tax returns. For 1099 earners, add complete personal tax returns with all schedules, and sometimes a year-to-date profit and loss statement.

Timing Your Purchase

Timing matters more for commission earners than for anyone else. If your last full year was strong and this year is on the same pace, now is your best qualifying window. If this year is running behind, a lender will see it on your year-to-date stub, and waiting until the pace recovers may raise your qualifying income. I'd rather talk to you 6 to 12 months before you want to buy, so we can see where the average will land. Plug the result into the affordability calculator to see what it supports.

Common Mistake

Assuming your best year is your qualifying income. If you had a $150,000 commission year followed by an $80,000 year, you don't qualify on $150,000, or even on the $115,000 average. You qualify on $80,000 at best. Bonus income works the same way; see how bonus income is averaged.

Dan's Take

Commission files are won or lost on the income calculation, and I see it done wrong in both directions. Some lenders flatly refuse anything under two years, even when Fannie Mae or FHA would accept 12 months. Others average two years without checking the year-to-date stub, then the underwriter catches the decline a week before closing and the approval falls apart. I run the numbers the way an underwriter will before we ever write an offer, so the figure on your pre-approval is the one that closes. If your commission is trending up, you are likely in better shape than you think.

Bottom Line

Commission income absolutely qualifies. Expect a 24-month average, know that 12 months can work with the right lender, and watch your trend: a recent down year is what hurts. If you earn commission and are thinking about buying, get pre-approved early enough to plan around your income history.