Best Loan Programs for This Situation
Fannie Mae handles commission income well when documented for two years. Better rates at 700+ credit.
Works well for commission earners with lower credit scores or down payments.
If commission income fluctuates heavily or you're 100% commission with significant write-offs, a bank statement loan may qualify you on gross deposits.
Commission income is usable for mortgage qualification, but lenders average it over two years because of its inherent variability. A real estate agent who earned $95,000 last year and $45,000 the year before qualifies on a $70,000 average, not $95,000. Declining commission income is the scenario that most often causes problems: lenders may use the lower year or require a satisfactory explanation of why income will stabilize.
How the Two-Year Average Works
Lenders pull your commission income from W-2 box 5 (for W-2 employees who also receive commission) and Schedule C or E (for self-employed commission earners). They calculate the two-year average from your tax returns, not your most recent pay stub. This matters when income has been volatile: a great recent year doesn't override a poor prior year in the calculation.
Increasing vs. Declining Commission Income
If your commission income is increasing year over year, lenders typically use the two-year average, which is slightly conservative but generally favorable. If your commission income is declining, lenders may use the lower of the two years rather than the average. A decline of more than 25% often triggers additional scrutiny and may require a written explanation and evidence that income has stabilized.
100% Commission Earners and Self-Employment Treatment
If your entire compensation is commission with no base salary, lenders treat you like a self-employed borrower regardless of whether you receive a W-2. This means two years of the same employer or same industry, a two-year average of net commission income, and potentially a profit and loss statement. Bank statement loans are an option if your commission is high but your tax write-offs reduce net income significantly.
Commission income is one of the most common income structures I work with in Bakersfield. Real estate agents, solar sales reps, car salespeople, insurance agents: the approach is the same. The two-year average is the rule, and the direction of that income matters as much as the amount. Build two strong years first.
Want to run the numbers on your commission income and see what you qualify for in Bakersfield?
Call Dan at (661) 342-9381. He'll review your income documentation and loan options in a free call.