How is commission factored as income on a home mortgage application?

You need to show all commission for a period of two years. So we can get a two year average of this income.

Banks income average the passed 2 years- if that current year is lower then the first they will assume the loss going forward. Call me , I am a Direct Lender in Pa. www.HOMEMORTGAGEXPERT.com Peter Savino 855 411 LEND

A 2 year history of receiving commission is preferred. You could qualify with a 12-24 month history depending on the loan program, amount of down payment, your credit score and other factors but not all lenders will allow this. Also, if commissions are no more than 25% of your income the rules are looser. Something else to be aware of... if you claim un-reimbursed employee expenses on Schedule A of your tax returns, this amount will be subtracted from your income. If your loan officer doesn't take this into consideration up-front it can destroy a transaction when the file gets to the underwriter.

Yes they will look at a two year history and if the second year is less they usually will use that.

Assuming the commissions are paid on a W2, and depending on the type of mortgage (government insured vs. conventional) possibly as little as one year but normally 2 years income. Be careful though, if you have unreimbursed business expenses that you write off on your federal taxes that write off is a direct reduction to your qualifying income. If the income is 1099 you are considered self-employed and your income is what was left over after expenses on your tax return (schedule c)

Anyone making more than 25% of their income in commission will need to provide the past two years of federal Tax returns. We will see what you reported in income, look for any expense you may have written off. We take those last two years and average the income. That will be what we use for qualifying income.

It is averaged over a 2 year period.