Brenda Almost Lost Her House Over a Commission Income Rule Nobody Explained Right
Brenda was two weeks from closing on a house outside Pooler, Georgia when her loan officer told her the deal was dead. The reason: her commission income didn't count. She had fourteen months in her current role as a commission-based auto sales rep, and someone had told her that wasn't enough. She almost lost the house over a rule that, as it turns out, nobody had explained to her correctly.
The Two-Year Myth
If you've ever applied for a mortgage while earning commission income, you've probably heard some version of "you need two years of history." It gets repeated so often that both buyers and some loan officers treat it as an absolute rule. It isn't, at least not the way most people think.
What FHA Guidelines Actually Say
HUD 4000.1 lays out the real standard for commission income. The guideline states it directly: "The Mortgagee may use Commission Income as Effective Income if the Borrower earned the income for at least one year in the same or similar line of work and it is reasonably likely to continue. The Mortgagee must calculate Effective Income for commission by using the lesser of: the average Commission Income earned over the previous two years (or the length of time earned if less than two years); or the average Commission Income earned over the previous year."
Read that closely. It says one year, in the same or similar line of work, not two years in the exact same job. A situation that comes up often with commission-based buyers is that they had a comparable sales role before their current one, and that prior experience can establish the history FHA is looking for. Then the lender calculates effective income using whichever average is lower, the two-year figure or the one-year figure, to be conservative and protect the borrower from overstating income.
Why This Gets Missed
Some loan officers stop reading at "the previous two years" and assume that's a flat requirement. It isn't the eligibility threshold, it's part of the calculation method once eligibility is already established by the one-year, similar-line-of-work standard. That distinction is exactly where deals like Brenda's get wrongly declined.
The Question That Protects You
If you're commission-based and have less than two years in your current role, there's one question that cuts through the confusion. Ask your lender: "Have I earned this income for at least one year in the same or similar line of work, and are you calculating it using the lesser of my two-year average or my one-year average, per FHA Section II.A.4.c.ix?" Ask for the answer in writing. This forces a correct, documented answer instead of a guess.
How This Gets Solved
Working through a situation like Brenda's means documenting the similar line of work history, confirming the income is reasonably likely to continue, and running the calculation using the lesser of the two averages exactly as the guideline requires. That's the difference between a file that gets declined on a surface read and one that gets approved correctly.
If you're commission-based and someone has told you that you don't qualify because of time in your role, it's worth getting a second opinion before you accept that answer. I'm Jason Sharon, licensed mortgage broker at Home Loans Inc, and I find the path. Call 843-LOW-RATE to talk through your specific situation.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
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