Commission-Only or Irregular Income, and the Bank Said No

A strong year followed by a weak year is normal for commissioned income. It is also the shape most often misread.

A strong year followed by a weak year is a normal shape for commissioned and variable income. It is also the shape most likely to be misread by a standard mortgage calculation.

What the lender does with two different years

The default approach is to average. Two years of income, added and divided by two. Sometimes worse: if the most recent year is lower than the year before, many lenders will use the lower of the two rather than the average, on the reasoning that income is trending down.

That single convention decides a large share of these files. A person who earned well last year and less the year before is treated very differently from a person with the same two numbers in the opposite order.

Where the file can be rescued

Explain the pattern, with evidence. If the weak year has a reason, a parental leave, an illness, a territory change, a company reorganisation, a year spent building a book, that context matters and it needs to be documented rather than asserted. Underwriters can exercise judgement when they are given something to exercise it on.

Show the trajectory. Year-to-date earnings, recent pay statements, a letter from your employer confirming your commission structure and current run rate. If this year is on pace to beat both prior years, that is a materially different file from one described only by two old tax returns.

Look for lenders that weight recent income. Not every lender applies the two-year average the same way. Some will use the most recent twelve months where the trend is up and the employment is stable.

Separate base from commission. If part of your income is guaranteed base salary, that portion is usually treated as employment income and assessed straightforwardly. Some borrowers qualify on base alone with the commission ignored entirely, which is a simpler file than trying to make the variable piece work.

The documents that matter

Two years of T1 and Notices of Assessment. Two years of T4s, which show the commission split. Recent pay statements. A letter from your employer confirming your position, tenure, structure and that you remain in good standing. If you are self-employed on commission rather than employed, business financials and bank statements as well.

Tenure is doing more work than you think

Most lenders want to see roughly two years in the same role or the same line of work. Changing employers within the same industry is usually fine and sometimes helps if compensation improved. Changing industries resets the clock in the eyes of most underwriters, however good the reason.

If a move is coming and a purchase is coming, the order matters. Buying before the move is frequently easier than buying after it.

What not to do

Do not apply repeatedly hoping for a different result. Each application leaves an inquiry, and a series of them in a short period makes every subsequent lender more cautious, which is the opposite of what a variable-income file needs.

Do not assume alternative lending is the only route. It is a legitimate answer for some of these files and it is frequently reached for too early. Test the A lenders that weight recent income first, because the pricing difference over a full term is significant.

The realistic outcome

Irregular income makes the file harder to document, not harder to justify. Most of these are placeable at reasonable rates when the pattern is explained, the trajectory is shown, and the file goes to a lender whose calculation fits the shape of your earnings. ---

David H. Nataf is a mortgage broker licensed in Quebec by the Autorité des marchés financiers (AMF #3001986744), practising through Groupe Hypothécaire Orbis. He also holds an individual U.S. licence, NMLS #2613311 (Florida), for cross-border files.

This page is for information. Lender programs, rates, requirements and availability vary and can change without notice. Nothing here is tax, legal or accounting advice.