Verification of Commission Income: Guidelines for Mortgage Qualification
Short answer
Commission income generally needs a documented history and gets averaged rather than taken at face value. A strong recent year does not fix a weak prior year — and unreimbursed business expenses can reduce what actually counts.
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When applying for a mortgage, lenders must complete a verification of commission income to determine if this variable source of earnings is stable, predictable, and likely to continue. Commission income is common for sales professionals and other roles with performance-based pay, but because it can fluctuate, lenders follow strict guidelines to evaluate it for mortgage qualification.
At North Star Mortgage Network in Jacksonville, Florida, commission income is verified with a documented earnings history and, where required, the tax returns showing unreimbursed business expenses. Guidelines vary by program, and all loans are subject to credit approval.
Verification of Commission Income Requirements
A history of at least two years of commission income is recommended. However, commission income received for 12 to 24 months may still be acceptable if positive compensating factors offset the shorter history.
Lenders require one of the following to document commission income:
- A completed Request for Verification of Employment (Form 1005), or
- The borrower’s recent paystub and IRS W-2 forms covering the most recent two-year period.
In addition, a verbal VOE (Verification of Employment) is required from each employer.
Stable and Predictable Income
Fannie Mae emphasizes that stable and reliable income is the foundation of sound underwriting. Even borrowers who change jobs frequently can be considered reliable if their income is consistent and predictable.
For commission income and other variable pay (bonuses, overtime, contract work), lenders must review prior earnings to demonstrate the likelihood that income will continue at a consistent level.
Variable Income and Trending Analysis
Since commissions are variable, lenders use an averaging method to determine monthly income. They review:
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- History of Receipt: Two years preferred; 12–24 months may be acceptable.
- Frequency of Payment: Weekly, monthly, quarterly, or annually must be documented accurately.
- Income Trending: Current year-to-date income is compared with prior years’ W-2s or tax returns.
If income is stable or increasing, lenders average the amounts. If income is declining, lenders use the lower figure or may disallow the income if it shows an unstable trend.
Continuity of Commission Income
To ensure repayment ability, lenders must conclude that commission income will continue for at least three years. If income has no defined expiration date (such as commissions or base salary), lenders are not required to document a continuance.
However, if income is tied to a defined expiration date (such as alimony, royalties, or retirement account distributions), lenders must document a three-year continuance before considering it.
Federal Income Tax Return Requirements
Tax returns may be required if the borrower:
- Works for a family member or interested party in the transaction
- Receives rental income, capital gains, or royalties
- Has self-employment or business ownership exceeding 25%
- Uses tip income, foreign income, or other non-traditional earnings
These documents provide a more complete picture of fluctuating or non-standard commission income sources.
Commission Income for Non-U.S. Citizen Borrowers
The rules for verification of commission income are the same for non-U.S. citizens employed in the U.S. by a U.S. company. However, if paid in foreign currency, two years of U.S. federal tax returns must be provided, and all income must be translated into U.S. dollars.
Nontaxable and Grossed-Up Income
If a borrower’s commission income is paired with nontaxable income sources such as Social Security or child support, lenders may “gross up” the amount by 25% to reflect its tax-advantaged status. This adjusted figure is then included in qualifying ratios.
Key Takeaway
Lenders will use verification of commission income to evaluate consistency, stability, and likelihood of continuance. Borrowers with less than two years of commission history may still qualify if strong compensating factors are present, but documentation and analysis remain critical to proving eligibility.
