Commission Income Mortgages
If a large percentage of your income comes from commission, you may need to apply for a commission income mortgage. This is when the lender marks down funds that you earn from commission or bonuses as a source of income that you will be using to pay for their mortgages. Considering the financial environment, it’s not surprising that the bank considers this a risky source of annual income.
Since funds earned on commission are less likely to remain steady, banks often require a definitive paper trail to assure them that the cash flow will continue. Mainly, they want to know that you have a sustainable source of income.
If a significant amount of your income comes from commission or bonuses, it is especially helpful to get in touch with a mortgage broker. Since they have contacts in the underwriting industry, they are capable of discussing your financial situation with them directly. This means that you won’t have to bother filling out a home loan application with a lender that would never consider working with you. It also means that it will take significantly less time to find one who will.
Because of the fact that a mortgage broker knows its lenders requirements, they are able to quickly identify which bank is ideal for you after collecting your financial information. Some lenders are best suited for high income borrowers with a good credit history. Others are better suited for people who have had a less than stellar financial performance in the past, and may not have as reliable a source of income.
A broker can collect all of your financial information up front. You won’t be forced to fill out an endless barrage of paperwork. Once the broker has your information, they can typically move forward from there without requiring any additional financial information.
Many brokers will continue to work with you even after your first mortgage. They will stay updated on your financial situation, and continue to monitor the lending industry for opportunities to refinance your home loan and get an even better deal.
Why are Lenders Concerned about Commission Income?
Throughout Australia, salesmen who earn a large portion of their income through commission are turned down for home loans even if their financial situation is robust. Many banks won’t even consider dealing with somebody with a commission based income. Those who are willing to work with you will most likely want two years of documentation to demonstrate the stability of your income.
Banks prefer not to work with people who are paid based on commission because the amount of money you earn each month can vary quite dramatically, and it isn’t guaranteed. People who earn a regular salary are considered more reliable.
This is not necessarily fair. There is no such thing as a “guaranteed income” after all, because even people with a regular salary can lose employment. Regardless, this is the logic used by many lenders.
The good news is that not all lenders approach the subject the same way. There are some lenders who are willing to offer a relatively competitive home loan with as little as three months of income paperwork. Working with a broker is still highly recommended, since banks who are more liberal with who they are willing to lend to often have less than ideal interest rates and terms.
Why Some Lenders Consider Commission Income Differently
Not all banks or lenders approach commission income with the risk-averse logic described above. There are many reasons to think of a salesman who earns this type of income to be very low risk. One of the most important factors is the simple fact that you can always work harder in order to earn more. The need to pay off a mortgage is also one of the strongest motivations to work harder.
Since you are only paid significantly when you make a sale, commission based earners are viewed differently from standard employees. The more they pay you, the more money they are earning. This means that people who work on commission are rarely thought of as an “expense” the same way that most employees are. When economic conditions get worse, commission based earners are less likely to be laid off than standard employees.
Finally, most people who work on commission are very financially stable. They have a keen understanding of the way that money works, and are less likely to spend money that they don’t have.
Information You Might Need
Every lender has a different application process, but many of them require similar information. To begin with, most will require documentation of your two most recent paychecks. These need to include your total income for the year, which can be used to extrapolate your annual income.
If the payslip does not include this information, you will likely be asked to provide additional income like a tax return, a letter from the people you work for, and evidence of your sales performance over a period lasting at least three months.
Many lenders will also require at least two years of tax returns and a letter from your employer demonstrating consistent income.
Find more information about commission income mortgages.
People work hard to earn their keep, in fact some work as much as 16 hours daily or work 36 hours before taking a break. This is usually due to overtime, and lack of personnel to do their jobs. Overtime for those in the health sector, law enforcement, and the emergency department, find it to be very common and is part of their daily life. This means that they earn a lot more than their basic salary because of the overtime that they get. The problem is that when they apply for home loans, often their overtime income is either not at all recognized or only partially recognized. For these workers it is not fair to recognize only a portion of their overtime income, but the overtime income should be credited 100%.