Conventional and FHA loans on a new commission job?

Question

I recently switched from a salaried position to a 100% commission based job and am told that I must have two years of commission only income before being considered for a conventional or FHA mortgage. Is anyone familiar with this?

I planned to buy my first property on an FHA program and "house hack" for the first year or so while continuing my real estate education.

Any insight you can offer would be much appreciated.

Chris Mason · Answer

Hi @Nick Neville,

Unfortunately, @Russell Brazil is correct. It's the irony of ironies when someone goes 100% commission, their income doubles as a result, and the mortgage industry says that they don't "make enough" until it's been a couple tax years. :\

Chris Mason · Answer

Yup, almost anyone with a solid down payment can get a mortgage of some form or another. Portfolio ARMs, the guidelines/rates/terms of which vary greatly from lender to lender. So maybe Lender A wants 20% down but is at 6.5% for rate and 3 years until it adjusts, and Lender B wants 30% down but is at 5.5% to rate and that doesn't adjust for 5 years. It's not like the fannie/freddie/fha world where you only see trivial differences in rates/terms because it's all the exact same products re-branded, the differences in the portfolio ARM world are huge.

Chris Mason · Answer

Hi Taylor,

Suggest you be careful before you have anyone lifting contingencies based on that. That Freddie Mac trick is nice for some forms of self employment (sched c, s corp, partnership), but only a model match specifically for commission if underwriting misses something.

Freddie doesn't lump all self employment together into one big "treat it all the same" basket the way Fannie does.

http://www.freddiemac.com/learn/pdfs/uw/docmatrix....

Russell Brazil · Answer

My understanding is that you will need two years of income, and they will base your approval off of the lower of the two years.  @Chris Mason is a loan officer and can probably give you more exact details.

Nick Neville · Answer

@Chris Mason, If I was able to pay 20% or more down and go through a local bank that does not sell to Fannie/Freddie is it possible for me to bypass these guidelines?

Taylor Winkler · Answer

@Nick Neville Hi Nick! Older guidelines required a two year commission history. The new guidelines allow lenders to take your YTD income for the most recent prior year. You will still need to have employment history for two years, however only one year of commission is required. Hope that helps! :)

Nick Neville · Answer

Please explain. I'm intrigued.

Nick Neville · Answer

Appreciate the input @Chris Mason and @Russell Brazil, Unfortunately it sounds like conventional is not going to be an option for quite a while. Was really hoping to be able to get into a house hack sometime this year and get the ball rolling. Thank you both!

Conventional and FHA loans on a new commission job?

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