Switching from salary to commission causing loan complications?

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Switching from salary to commission causing loan complications?

Charlie Chew
Livermore, CA · Member since 2017 · 8 posts · 3 votes

Hey guys,

I recently spoke with a lender about getting prequalified for a loan, and explained to the gentleman that I'm about 4 months away from rolling over from a salary position to a purely commission based pay, and that my income would be increasing fairly significantly. 

His response to this was that it would interrupt the 2 years of steady income I've established with my job, since "any lender will ask, 'what were your commissions for the last 2 years with this job?'"

This sounds like BS to me, since there were a few other signs in the conversation that indicated that he may have been looking to close a deal sooner than later... 

Is there anyone on here who can comment on this? This was literally the first lender I've dealt with so I'm trying to give him the benefit of the doubt here... 

Thank you

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

He is absolutely correct. Get the loan while you have your w2 income. You will need 2 years of commission tax returns after that. You will qualify based off the lower of those 2 years as well.

[email protected]301-893-4635Podcast Guest on Show #192
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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    He is absolutely correct. Get the loan while you have your w2 income. You will need 2 years of commission tax returns after that. You will qualify based off the lower of those 2 years as well.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    Orlando, FL · Member since 2013 · 29 posts · 8 votes
    9y
    In my experience, your lender and Russell Brazil are correct. I am closing soon on a property. At the beginning of the application process, my lender wanted to see at least two years in the same industry. They also asked if I was planning to change jobs or change to a different industry before closing because that could affect loan approval. The lender would not allow me to use the income from my part-time second job because I had not had it for at least two years. My advice: stick with the salaried position, get a loan approved and close on the property you want, and then switch to the new position.
    1Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    9y

    @Charlie Chew just wanted to confirm what others have said here.  Switching the method of how you are compensated will not fit with a "conventional" loan.  Meaning a loan that is governed by Fannie Mae or Freddie Mac (if you recognize those names).  You do have another option of doing a "portfolio" loan.  A portfolio loan is a loan that the bank governs - it comes from their own money.  But the rate will be about 2 points higher.  Or be amortized over 20 years or have some sort of feature that you won't like but it will be your only option.  If you have the ability to keep your current income method through closing then please take advantage of that.  

    Also, the lender will call your employer to see if your employment will continue.  So if your income will change because you are switching employers, and your employer knows about it, then that could come up on the "Verification of Employment" step of the loan.  


    Let us know if you have any other questions on this topic.  Good luck.

    1Reply
  • Charlie Chew
    OP
    Livermore, CA · Member since 2017 · 8 posts · 3 votes
    9y
    Wow Russell Brazil Lonnie Hodges and Andrew Postell thank you very much for responding to this. You're saving me a ton of headache here! I almost let my ignorance get the best of me... Thanks again.
    2Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y
    Originally posted by @Charlie Chew:

    Wow Russell Brazil Lonnie Hodges and Andrew Postell thank you very much for responding to this. You're saving me a ton of headache here!
    I almost let my ignorance get the best of me... Thanks again.

     Pragmatically, you need to pick some two year period of time where you will not be needing any good interest rate 30YF mortgages. And once you identify that two year period of time, that is when you go 100% commission. Or you work something out with low commission, but higher base salary.

    Ironically, most new real estate agents cannot purchase real estate themselves for this exact reason. So they run around pretending to know all about homeownership, while themselves stuck as being tenants. 

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