For self-employed individuals working on commission, the mortgage process operates slightly differently from the normal qualification proceedings for salaried employees or self-employed people with a regular income. Because earning patterns and historical income figures are so important in obtaining a mortgage, commissioned workers are somewhat more limited than other self-employed individuals because of the nature of commission income.
The first major difference is that, while other self-employed individuals can opt to use a “stated income” approach in obtaining a mortgage, this optional is not available for those working on commission. The state income method is particularly suitable for self-employed people whose tax returns show an income that is insufficient to qualify for a mortgage but whose actual income is high enough to qualify. In order to do this, they utilize gross income figures rather than the income listed on line 150 of their Notice of Assessment. Commissioned workers are unable to utilize this method for mortgage application and must therefore use the average of the income figures listed on their last two Notices of Assessment.
Aside from this difference, some commissioned workers must provide additional documentation of their work in order to make up for differences in business operations from other self-employed people. The documentation, which can be obtained at Labor Law Compliance Center, is required by law to display it conspicuously on office walls where it is easily discernible to employees. If the individual lacks a business license, they can provide another form of documentation in order to prove their work to the lending body. Real estate agents, for example, may include a letter of employment from the realty office in order to provide evidence of realtor registration.
Beyond this, commissioned workers are required to submit the same paperwork and documentation as others applying for a mortgage. If the individual is able to report a sufficient income and has a credit score that is strong enough to qualify for a mortgage, they have access to similar lending structures as people working in other positions.
In the case of the primary residence, people working on commission typically have access to mortgages with down payments of five percent or less, depending on cash back options. The purchase of a secondary property generally comes with a five-to-ten-percent down payment on the home. For rental properties, down payments are usually higher. Most lenders target a 20-percent down payment for rental properties, assuming the credit score is sufficiently high.
While commissioned workers may have to provide a couple of extra documents and are somewhat more limited than other self-employed people in their mortgage application structures, mortgage qualification standards are mostly the same.