I started a new job in May, but have been in the same trade for over three years. My husband has been in the same job for five years and most of his pay comes from commissions. Based on our length of employment, recent new job, and commission paid by my husband, can we qualify for a mortgage?
First of all, let me congratulate you on your new job. These are great questions, and lenders may have different guidelines for the loan programs they keep in-house (also known as portfolio loans), so I’m going to focus on the guidelines most lenders follow.
In most cases, lenders require at least two years of employment for conventional and FHA financing. Using your pay stubs, W-2s, and tax returns, lenders will determine your income by averaging your income over that period. Income from commissions, overtime, and / or bonuses can only be used if you have a two-year history. In your husband’s situation, his commission can be used in calculating his total income. The consistency of its commission will be decisive in calculating its income and it must be documented. The amount of income used from the commission can also make a difference. For example, if their commission income is less than or equal to 25 percent of their total income, the lender should use traditional employment documentation. If their commission is more than 25% of their total income, the lender will require tax returns, including all schedules for the past two years. In most cases, the lender will use the lesser of the average commission earned over the past two years or the average commission from the previous year.
Since your new position is in the same area of work, this shouldn’t be a problem. Lenders typically need 30 days of employment in this new position.
You may have a small employment gap if you have already had a stable job in the same industry. If you have had a break in employment of six months or more, the lender may consider your current income if they can verify that you have been in your current job for at least six months and that you have a two-year history in the same line. of work before the interruption of employment.
If you changed jobs more than three times in a 12-month period, the lender may need to prove that you received income increases or benefits to use your income.
Some comments on self-employed workers. I understand that you might want to write off a significant portion of your income as a business expense, however, this may minimize the amount of money you can borrow since the lender will use what is on your tax returns. While COVID has impacted many independent businesses in 2020, it can be difficult to qualify for a new mortgage if your total income has fallen more than 20% from the previous year.
Again, I encourage you to contact your lender and they can determine what will be needed to document your income, as each loan program may have different guidelines. Please feel free to contact me directly if you would like to discuss this further. Thanks again for the good questions!
Branch Manager, NMLS # 1721861
Cherry Creek Mortgage, LLC, NMLS 3001