Sales Job Loan Problems?

Question

Graduating college this year and have multiple offers for employment once I am finished this spring. Taking a tune from @Scott Trench's book Set For Life, I have been very interested in an engineering sales position that would start off on a salary but transition to a commission salary within a short period of time. Although I see that this has the greatest potential to make a higher wage in the future, my question is this:

How much harder is it to get conventional loans with a commission salary? Would a bank be more apt to make conventional loans on a set salary of say 60k or a commission salary that is making more money per year?

If you have a sales job or know people that might have any information or tips on this topic, tell me your story below!

-Neil Schlimgen

Chris Mason · Answer

It's good that your employer himself owns a bunch of properties, it means he knows the pain of dealing with mortgage BS and is less likely to do anything that will give you grief.

When someone works for a place not known to pay enough for folks to become homeowners, it's not unusual to encounter problems. Example being Spouse 1 is a high earner, Spouse 2 works at a fast food place, and we need that Spouse 2 income to make it work. What are the odds that anyone at the fast food place has ever even applied for a mortgage, including specifically Spouse 2's manager that will be filling out the paperwork? So the person filling out the paperwork doesn't know the pain, and might even spite his employee for being ahead of him in that area. So we get clearly half-arsed paperwork back.

Neil S. · Answer

@Chris Mason,

Thank you for your response. I could see where that might get me in trouble during the underwriting process.... I suppose it depends on how I structure my payments. I know that my potential employer owns rental properties of his own so he might have some tips on the subject!

Chris Mason · Answer

Base salary can be counted without the 2 year wait.

But if your HR/payroll folks "helpfully volunteer" to underwriting that the salary will be ending in 2 years, it would likely be a deal-breaker.

If you want a sneak preview of how they will fill it out, this is the form that the underwriter will (probably) be using and send to them to fill out. Boxes 11 and 20 are where the HR/payroll person being "helpful" could potentially sink you.

Neil S. · Answer

Thank you everyone for the replies! I am leaning towards the commission Job, and it looks like it will be tougher to get the best loan available like Kevin and Andrew stated above. If I have a set salary for the first few years before converting to commission, would this make it easier to get the conventional loans right away?

For example a set salary for two years of 60k and then converted to commission with the potential of 100k plus.

Kevin Romines · Answer

@Neil Schlimgen, I agree with what @Andrew Postell has commented above. To add to what was said, you can potentially look at an FHA loan with 1 year or more but less than 2 years averages on your commissioned income. I have personally closed loans where the average was just 1 year. See the guidelines below:

Andrew Postell · Answer

@Neil Schlimgen I can answer this question will very precise information.

With a "conforming, conventional" loan (loans governed by Fannie Mae and Freddie Mac) they will require you to have 2 years of commission and bonus to use that income.  A Fannie/Freddie loan has the lowest rates and best terms for investors in the mortgage world.  But since they are government sponsored agencies they have more restrictions on them.  This loan type can qualify you right out of college with your salary but fluctuating income they would need a 2 year history to even use it.

There are other loan types that are sometimes called "portfolio" loans.  These are loan types that come from the bank's own portfolio of money...thus the name.  Meaning, money not regulated by the government.  But it's more risky for the bank to lend it and there is a limited amount of it.  If you can get a loan of this type the rate will be higher, the term might be a 15 year loan at best, and it will likely be an adjustable rate.

Most banks will lend to you with a salary job right out of college.  You will also receive the best loan type as well.  A very small amount of banks will lend to you with a commission job outside of college but your loan will be very different.

I hope this helps in some way but feel free to ask more questions if you need.  Thanks!