Using Agent Commission towards down payment for my own Investment Property

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Using Agent Commission towards down payment for my own Investment Property

Anil Shah
Real Estate Agent · Raleigh, NC · Member since 2025 · 31 posts · 15 votes

Hello BP Community, 

I am under contract to purchase a new construction home as an investment property and I am the RE Agent. Initially, we wanted to  have the loan under my wife's name only but my the loan officer from the builder's lending arm told us that if I am in the buyer, the RE Agent and the mortgagor (in the loan), I could use my agent commission towards closing costs and down payment. As such, we decided that I will have the loan in my name alone. Now that we are 10 days from closing, I am talking to loan officer to get the Closing Disclosure so that I can know the exact cash to close (I need to move money from brokerage to bank account) and he is mentioning about 2% IPC limit. 

My question is - do I have any recourse if the loan officer now deviates from what he initially told us verbally and in writing (I have the emails and text)? It might cause me financial harm as I have to sell more stocks and might pay short term capital gains vs long term capital gains. Also, I might need to pay tax on the RE Agent commission. Would love to hear more from other loan officers. We are talking about taxes on 15K.

On another note, I had the exact same issues 3 months back but that time, since the LO had not mentioned it, I did not push for it. My research said it was possible to use my RE Agent commission towards the down payment but he said we cannot and I just let it go. However, can I say that I gave a rebate to myself on that transaction for the full RE Agent Commission amount and decrease the cost basis of my house accordingly? That would help me save taxes on the commission. 

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
1y

Yes you can use commission as sourced funds for down payment on a conventional loan.

However some lenders have internal overlays that don't allow it.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    1y

    Yes you can use commission as sourced funds for down payment on a conventional loan.

    However some lenders have internal overlays that don't allow it.

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  • Jeff ChisumPro Member
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    1y

    You can use your commission for down and closing. Sounds like you are going with a Fannie/Freddie type loan based on the cap of 2%. That would have been known up front if that was the original loan product being used. Did you look at DSCR? Potentially lower down needed of 15% with better rate and 6% cap in IPC's

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  • Derek BrickleyBusiness Member
    Lender · Ann Arbor, MI · Member since 2021 · 666 posts · 227 votes
    1y

    Pretty common, you can definitely use commission as down payment conventional loans and not have it count toward IPC as long as you're on the loan.  You just need confirmation from your broker the amount you would receive from the commission (if they take a cut), if you're your own broker you can authorize that yourself.  Pretty standard and we've definitely done it in the past with a lot of real estate agents we work with that invest.

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  • Anil Shah
    OP
    Real Estate Agent · Raleigh, NC · Member since 2025 · 31 posts · 15 votes
    1y
    Quote from @Derek Brickley:

    Pretty common, you can definitely use commission as down payment conventional loans and not have it count toward IPC as long as you're on the loan.  You just need confirmation from your broker the amount you would receive from the commission (if they take a cut), if you're your own broker you can authorize that yourself.  Pretty standard and we've definitely done it in the past with a lot of real estate agents we work with that invest.


     Thank you. My loan officer just came back to me apologizing for the oversight and informed me that the CD will reflect the right amount for cash to close. I have provided them a letter from my broker about the amount that can be used. All good for now. 

    1Reply
  • Anil Shah
    OP
    Real Estate Agent · Raleigh, NC · Member since 2025 · 31 posts · 15 votes
    1y
    Quote from @Jeff Chisum:

    You can use your commission for down and closing. Sounds like you are going with a Fannie/Freddie type loan based on the cap of 2%. That would have been known up front if that was the original loan product being used. Did you look at DSCR? Potentially lower down needed of 15% with better rate and 6% cap in IPC's


    Thanks, Jeff. It is a standard conventional loan and was offered as a promotional financing by builder at the rate of 5% for investors. 

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  • Dawn RoyBusiness Member
    Real Estate Broker · Midlothian, VA · Member since 2017 · 77 posts · 41 votes
    1y

    My response is not relevant to this transaction as it appears everything is going to work out with your lender.  However, for future purchases as investments or otherwise, as a Realtor, I never take a commission on my purchases.

    For one, I don't want to pay taxes on it or split it with my brokerage. As we all know, you are really paying for the commission in the purchase price. I prefer to negotiate the purchase price removing any seller commission. Now with the NAR settlement, all buyer commissions are negotiable in the contract. Whether the seller was open to a buyer commission or not, I wouldn't put an additional cost into any personal purchase.

    Congratulations on your new investment property.

    Cheers!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @Dawn Roy:

    My response is not relevant to this transaction as it appears everything is going to work out with your lender.  However, for future purchases as investments or otherwise, as a Realtor, I never take a commission on my purchases.

    For one, I don't want to pay taxes on it or split it with my brokerage. As we all know, you are really paying for the commission in the purchase price. I prefer to negotiate the purchase price removing any seller commission. Now with the NAR settlement, all buyer commissions are negotiable in the contract. Whether the seller was open to a buyer commission or not, I wouldn't put an additional cost into any personal purchase.

    Congratulations on your new investment property.

    Cheers!

    No kidding we just get them to discount the price by our commish.. Now I can see some builders having an issue with comps.. but other than that its crazy to take these funds as income and then pay tax and plow it right back in..  Geesh.

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  • Derek BrickleyBusiness Member
    Lender · Ann Arbor, MI · Member since 2021 · 666 posts · 227 votes
    1y
    Quote from @Anil Shah:
    Quote from @Derek Brickley:

    Pretty common, you can definitely use commission as down payment conventional loans and not have it count toward IPC as long as you're on the loan.  You just need confirmation from your broker the amount you would receive from the commission (if they take a cut), if you're your own broker you can authorize that yourself.  Pretty standard and we've definitely done it in the past with a lot of real estate agents we work with that invest.


     Thank you. My loan officer just came back to me apologizing for the oversight and informed me that the CD will reflect the right amount for cash to close. I have provided them a letter from my broker about the amount that can be used. All good for now. 


     There ya go! Congrats!

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  • Anil Shah
    OP
    Real Estate Agent · Raleigh, NC · Member since 2025 · 31 posts · 15 votes
    1y
    Quote from @Dawn Roy:

    My response is not relevant to this transaction as it appears everything is going to work out with your lender.  However, for future purchases as investments or otherwise, as a Realtor, I never take a commission on my purchases.

    For one, I don't want to pay taxes on it or split it with my brokerage. As we all know, you are really paying for the commission in the purchase price. I prefer to negotiate the purchase price removing any seller commission. Now with the NAR settlement, all buyer commissions are negotiable in the contract. Whether the seller was open to a buyer commission or not, I wouldn't put an additional cost into any personal purchase.

    Congratulations on your new investment property.

    Cheers!


    I understand your logic but it is a new construction where they will not reduce the price in lieu of broker commission to keep their comps high. Also, as long as the house appraises, taking broker commission and using it against down payment and closing costs means lower cash requirements for me which increases my CoC returns. As I have a fixed split with my broker, it is well worth it for me.

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  • Anil Shah
    OP
    Real Estate Agent · Raleigh, NC · Member since 2025 · 31 posts · 15 votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @Dawn Roy:

    My response is not relevant to this transaction as it appears everything is going to work out with your lender.  However, for future purchases as investments or otherwise, as a Realtor, I never take a commission on my purchases.

    For one, I don't want to pay taxes on it or split it with my brokerage. As we all know, you are really paying for the commission in the purchase price. I prefer to negotiate the purchase price removing any seller commission. Now with the NAR settlement, all buyer commissions are negotiable in the contract. Whether the seller was open to a buyer commission or not, I wouldn't put an additional cost into any personal purchase.

    Congratulations on your new investment property.

    Cheers!

    No kidding we just get them to discount the price by our commish.. Now I can see some builders having an issue with comps.. but other than that its crazy to take these funds as income and then pay tax and plow it right back in..  Geesh.


    We don't take it as income as long as it is used at closing. It is a new construction where they will not reduce the price in lieu of broker commission to keep their comps high. Also, as long as the house appraises, taking broker commission and using it against down payment and closing costs means lower cash requirements for me which increases my CoC returns. As I have a fixed split with my broker, it is well worth it for me.

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