Professional secures commission income mortgage in Las Vegas.

Getting a Mortgage with Commission Income in Las Vegas

Q: How do lenders calculate mortgage qualifying income from commissions?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: What is the minimum employment history required for commission-based income?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: Can a lender ever use a 12-month average for commission income instead of 24 months?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: How do unreimbursed business expenses impact qualifying income for a mortgage?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: Will a recent large commission check significantly increase my borrowing power?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: What happens if my commission income has recently declined?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: What is a bank statement loan and when is it a good option for commission earners?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

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TL;DR

Lenders typically require a two-year history of commission earnings to establish a stable and predictable income pattern for loan qualification.
Unreimbursed business expenses shown on your tax returns will directly reduce your qualifying income, potentially lowering your loan amount.
A detailed letter of explanation can effectively clarify income fluctuations, address downward trends, and strengthen your mortgage application significantly.

How Lenders Average Commission Income for a Mortgage in Las Vegas

When you apply for a mortgage with commission-based earnings, lenders need to convert your variable pay into a stable, predictable monthly figure. The primary goal for an underwriter is to document an income stream that is likely to continue for at least the next three years. In Las Vegas and across Nevada, the standard method for this is a 24-month average.

An underwriter will take the total commission income from your last two years of tax returns or W-2s, add them together, and divide by 24. This becomes the monthly income figure used to calculate your debt-to-income (DTI) ratio and determine your loan eligibility.

Example: Let’s say you’re a real estate agent in Las Vegas.

Year 1 Commission: '$90,000'
Year 2 Commission: '$110,000'
Total Two-Year Income: '$200,000'
Calculation: '$200,000 / 24 months = $8,333.33 per month'

Your qualifying monthly income would be '$8,333.33'.

In some cases, if you have been receiving commission for more than 12 months but less than 24, an exception may be possible, but it requires a very strong file with other compensating factors like excellent credit and significant assets. (The data, information, or policy mentioned here may vary over time.)

Can Lenders Use a 12-Month Average Instead?

Using a shorter 12-month average is less common but possible under specific guidelines, typically from Fannie Mae or Freddie Mac. An underwriter might consider a 12-month average if your most recent year's income is equal to or greater than the prior year's income. This demonstrates income stability or growth. However, if your most recent year's income is lower, the lender will almost always insist on the more conservative 24-month average to account for the decline. (The data, information, or policy mentioned here may vary over time.)

Minimum History Required for Commission Earnings in Henderson

For homebuyers in Henderson and other competitive Nevada markets, the golden rule for commission income is a minimum two-year history. Lenders need to see this track record for one critical reason: it proves stability. A single great year could be a fluke, but two consecutive years of solid earnings demonstrate a consistent ability to generate income in your field.

Calculating commission income for a mortgage

This history must be with the same employer or, if you changed jobs, within the same line of work and with a similar pay structure. For example, moving from one car sales job to another maintains your history. However, switching from a salaried marketing role to a 100% commission sales role resets the clock; you would need to build a new two-year history in the commission-based position.

There are rare exceptions for a 12-to-24-month history, but these are challenging to get approved. (The data, information, or policy mentioned here may vary over time.) You would need significant compensating factors, such as:

A high credit score (typically 720+) (The data, information, or policy mentioned here may vary over time.)
Large cash reserves beyond the down payment and closing costs
A low debt-to-income ratio

Can a Recent Large Commission Check Help Your Home Loan Application?

A common misconception is that a single, large commission check right before applying for a mortgage will dramatically increase your borrowing power. While that influx of cash is excellent for your down payment or savings, it does not significantly boost your qualifying income.

Remember, underwriters use a long-term average. A one-time '$30,000' commission check, while impressive, gets blended into your 24-month calculation. Its impact on your average monthly income is minimal ('$30,000 / 24 = $1,250'). Lenders prioritize consistency over windfalls. A massive, out-of-the-ordinary payment can even be viewed as an outlier that is unlikely to be repeated, and an underwriter might question its inclusion in the average.

Where that check does help is by strengthening your overall financial profile. It can be used for:

A larger down payment, reducing the loan amount.
Paying off other debts to lower your DTI ratio.
Increasing your cash reserves, which lenders see as a safety net.

Essential Documents to Prove Your Commission Income Stability

Preparation is key. Having your documentation organized and ready will streamline the underwriting process. Here’s what you’ll need to provide:

Tax Returns and W-2s

Complete federal tax returns (all pages and schedules) for the most recent two years. If you are a W-2 employee, this includes your W-2 forms for each year. If you are a 1099 independent contractor, you'll provide your 1099 forms and your business tax returns (like a Schedule C).

Pay Stubs

Your most recent 30 days of pay stubs. These should clearly break down your base salary (if any) and commission earnings. Underwriters use these to create a year-to-date (YTD) income figure to ensure your current earnings are on track with previous years.

Verification of Employment (VOE)

A written VOE form completed by your employer. The lender sends this directly to your HR department. It confirms your dates of employment, your position, and your pay structure. Crucially, it asks for a breakdown of your YTD and prior two years' earnings, including base, bonus, and commission. It also asks about the likelihood of your employment and income continuing.

How Business Expenses Affect Your Qualifying Income in Reno

For both W-2 employees and 1099 contractors in Reno or anywhere in Nevada, any unreimbursed business expenses claimed on your tax returns will be subtracted from your gross income. This is a critical point that many commission earners overlook.

Essential documents required to prove commission income stability

If you are a W-2 employee, these expenses were historically claimed on IRS Form 2106, 'Employee Business Expenses'. While tax law changes have limited this for many, some professions can still claim them. If you are an independent contractor, these are the expenses you deduct on your Schedule C to lower your taxable income.

An underwriter’s calculation looks like this:

Gross Commission Income - Unreimbursed Business Expenses = Net Qualifying Income

Example: A medical device salesperson in Reno earned '$150,000' in commissions last year. On their tax return, they deducted '$25,000' for mileage, meals, and other business-related travel.

Gross Income: '$150,000'
Deductible Expenses: '-$25,000'
Qualifying Income for that year: '$125,000'

This '$125,000' figure is what the lender will use in the 24-month average calculation. It’s a trade-off: deducting expenses saves you money on taxes but reduces the income you can use to qualify for a mortgage.

Will a Downward Trend in Commissions Lead to an Automatic Denial?

A downward trend in commission income is one of the biggest red flags for an underwriter, but it is not an automatic denial. If your most recent year's earnings are lower than the previous year's, the underwriter must determine the cause and assess the risk of the trend continuing.

They will typically be required to use the lower, more recent year's income or even an average based on the most recent few months if the decline is sharp. To overcome this, you must provide a compelling and well-documented explanation. A strong Letter of Explanation (LOE) is your most powerful tool here.

Your LOE should address the decline head-on. Legitimate reasons could include:

Taking an extended leave for medical or family reasons.
A shift in your company's commission structure that has since stabilized.
A temporary market downturn in your industry that is now recovering (you can provide market data to support this).
A transition to a new territory that is now starting to produce results.

Without a plausible explanation, the lender will likely take the most conservative approach and may deny the loan.

Is a Bank Statement Loan a Better Option for Commission-Only Earners?

If your tax returns don't accurately reflect your cash flow due to extensive business write-offs, a bank statement loan can be an excellent alternative. This is a type of Non-Qualified Mortgage (Non-QM) that is not bound by the same strict income verification rules as conventional loans.

Instead of tax returns, lenders use 12 or 24 months of your personal or business bank statements to calculate your income. They will add up all the deposits and apply an expense factor (or use your profit and loss statements) to determine a qualifying monthly income.

Pros:

No tax returns required for income calculation.
Ideal for borrowers with high business expenses.
Allows you to qualify based on actual cash flow.

Cons:

Typically requires a larger down payment (often 10-20% minimum). (The data, information, or policy mentioned here may vary over time.)
Interest rates are generally higher than conventional loans. (The data, information, or policy mentioned here may vary over time.)
Requires clean, well-documented bank statements with consistent deposits.

For a commission-only professional in Henderson whose tax returns show low net income, a bank statement loan can be the difference between getting approved and being denied.

How a Detailed Letter of Explanation Can Strengthen Your Mortgage File

A Letter of Explanation (LOE) is your opportunity to speak directly to the underwriter and provide context for anything in your file that might seem unusual. For a commission earner, it can be the most important document you submit.

Use an LOE to proactively address potential concerns, including:

Gaps in Employment: Explain why you were out of work and how you have since established stability.
Income Fluctuations: Detail the reasons for any significant dips or spikes in your commission earnings. Be specific. For instance, 'The second quarter of 2022 was lower due to a company-wide transition to a new CRM system, which temporarily impacted sales productivity. As shown in the third and fourth quarters, my earnings have since recovered and exceeded prior levels.'
Changing Employers: If you changed jobs, explain that it was for a better opportunity within the same field and that your pay structure remains similar or improved.
Large, Irregular Deposits: Source any large deposits that are not from your regular payroll to show they are not undisclosed loans.

Understanding how your commission income translates into homebuying power is the first step. If you're ready to explore your options for a home in Las Vegas, Henderson, or anywhere in Nevada, we're here to help structure your application for success. Apply now to see where you stand.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.