In This Article
Is commission counted as income for mortgage?
If you are looking to take a residential mortgage, you may be wondering how a lender will treat your commission payments.
Most lenders are happy to accept commission that is paid to an applicant, however, they all have their own way of assessing the income.
Applicants will usually receive a basic income of some sort in addition to any commission that they received.
Lenders will use 100% of an applicant’s basic income. Some applicants will also receive allowances each month which are the same monthly.
If these allowances are not fluctuating, lenders will usually use 100% of these payments too. For instance, allowances such as London Weighting, car allowance or shift allowance.
Commission works differently as it is usually fluctuating due to being linked to performance, and may be paid at different intervals, such as monthly or quarterly.
Depending on when this commission is paid, it may affect the lender that you go to, as it could result in a different maximum loan amount due to their way of calculating the income.
For example, if a lender only uses the average of the monthly commission received over the last 3 months, this may not be suitable for an applicant who receives their commission bi-annually.
Your mortgage adviser would be able to understand more about your commission, when it is paid, and how much it equates to, in order to look for a lender that is suitable for you.
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Can I use 100% of my commission for mortgage?
You may be able to use 100% of your commission towards your affordability assessment, depending on your lender.
Some lenders will not offer this, and may instead use a certain percentage, such as 60%.
For the lenders that use 100% of commission received, they will need to see it paid over a certain period (for example, monthly, taking an average over 3 months) and make sure that it is on track towards the projected year-to-date figure, and recent months were not an anomaly.
If this is the case, there are lenders that will use 100% office income. For instance, if you receive a basic salary of £25,000, and in the last 3 months have had commission totalling £3,000, £4,000 and £2,000, some lenders would use an income of £61,000 (£25,000 + £36,000 average commission).
If the lender was willing to lend 5 times this income, this would equate to a mortgage of £305,000.
There is a lot more to take into consideration when calculating an applicant’s affordability such as deposit, term length and monthly commitments.
As a result, you should find a qualified mortgage adviser that can calculate your affordability for you.
Can commission only jobs be accepted for a mortgage?
Most lenders would not be willing to lend to applicants that receive commission only, with no basic income at all.
The reason is, a basic income is a safety net being paid every month regardless of the applicant’s performance at work.
There are however lenders that will consider applicants that are only paid commission if they have been doing it over a long period, for instance, more than one year.
The reason this is important is to be able to see what is being received over a decent amount of time.
This makes it easier for a lender to calculate what is expected in future if they can see that payments have been consistent.
The lender may wish to see payslips over a year in addition to a P60 from the employer.
Lenders change their criteria regularly along with the documents required. As a result, reach out to an experienced mortgage adviser that can help you to find a lender that is suitable for you.
What documents would be requested to verify commission for a mortgage?
It will depend upon the individual lender what documents they require to verify your commission. However, lenders will usually ask for a number of payslips to do this. This may be 3 months, 6 months or more.
If your commission is paid in intervals other than monthly, they will likely ask for these payslips so they can see the commission.
For example, if you get paid commission quarterly, the lender may want the latest payslips showing this.
They will also often ask for your P60 so you can show the total amount of income that was received over the year (and possibly past years too).
Underwriters will look at your year to date figures on your payslips to be sure that the income you have received recently in commission seems to be consistent with past earnings.
This is because lenders need to be responsible and not just base a person’s income over the long term on the last few months.
If it has risen, and there is good reason for it, some lenders may be willing to use the income in recent months even if it is not consistent with past income.
For instance, if an applicant’s commission percentage has risen recently, this could be a reason for an increase in commission payments.
How many months of commission do I need for mortgage?
There are some lenders that are willing to accept commission from applicants that only have 3 months showing on their payslips.
Many lenders will need to see more than this to be sure that this income is sustainable over the long term.
There are lenders that would want 6 months, or even one year backed up by P60 figures.
Your mortgage adviser would know which lenders to be looking at once they understand your full situation.
Do all lenders accept commission for a mortgage?
In general, it is rare for a lender to not accept commission at all on a mortgage application.
This is assuming the rest of the case fits criteria, and the applicant has a basic income of some sort, and contracted hours.
Different lenders use varying amounts of commission so this will affect how much lenders are willing to lend to you.
Where some lenders may accept 100%, some may only accept 60%. For example, if someone had a basic salary of £30,000, with £3,000 per month on average in commission, this would equate to £66,000.
A lender offering 5 times this amount may consider £330,000. If they kept commission at 60%, this same income would be considered £51,600 by the lender.
Offering the same 5 times income, this would equate to lending of £258,000 which is £72,000 lower than the lender using 100% of the commission.
This is why it is important to approach the right lenders for your situation.
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Should I use a mortgage broker when using commission for a mortgage?
Taking professional advice is always recommended when you are looking for a mortgage.
To save going to the wrong lenders, speaking with a professional can increase your chances of being accepted for the finance that you need.
If you are paid in commission, lenders treat this differently so knowing which one to go to is a skill learned over time with experience.
Experienced mortgage advisers will be able to understand your full situation, and how your income is made up, along with your outgoings, to look for a lender accordingly.
Make sure that the mortgage adviser that you use is regulated by the Financial Conduct Authority.
Most mortgage brokers will be willing to offer you a free consultation before any chargeable work is undertaken.
Can commission be used as income on a buy to let mortgage?
Commission can usually be used towards income for a buy to let mortgage application.
For instance, some lenders have a minimum income criteria on their applications. A common amount is £25,000.
If you want to earn a basic salary of £20,000, with commission of £1,000 per month, most buy to let mortgage lenders would call this income £32,000 a year sufficing the minimum income criteria.
Some buy to let lenders have no minimum income criteria at all. As a result, if you are solely commission, relatively new to the position, there should still be a lender available to you.
Like residential lenders, buy to let mortgage lenders also work in their own individual ways. This is why it is important to find a mortgage adviser with experience in buy to let lending, so they can be sure that your income meets the lender’s requirements.
Conclusion
Most residential and buy to let mortgage lenders are willing to use applicant’s commission payments, however, they underwrite income in their own way.
Some lenders will use 100% of the income, whereas others may cap at a certain percentage, for example, 60%. This can make a large difference to your lending capacity so it is important to approach a lender that is suitable for you.
You should look for an experienced mortgage adviser that is able to understand your commission and situation, to look for the correct lender.
If you would like I NEED ADVICE to match you with a mortgage adviser with experience in mortgages using commission, please complete the contact form.
They are experienced, which can boost your chances of being approved.
