Are you a Mortgage Broker? Can I go ahead and ask you anything?

[alltherage]

I'll be a first time home buyer this summer/fall but we're still working on the down payment til then. My questions is, when they qualify you for your first mortgage, how does comission work?

For example if I make (random numbers) $50,000 salary, add $20,000 in comissions, do they qualify it with $50,000 or $70,000?

Also, I've only been at this job for about 3 or 4 months, so I don't have a long history- but overall I've been steadily employed full time for 5+ years.

Thanks CPBT.

[amorak]

I think, for commissions or any variable-rate income, you need 2 or 3 years of prior earning history before they take it into account.

But we'll let a pro answer, that's just my experience as an owner of an hourly-rate consulting firm ( ie I too have variable-rate pay)

[amorak]

What I mean, in laymans terms, is you need 2 or 3 years of prior comission income before they'll include it in your income - They'll take an average of the past 2-3 years.

[Mike Oxlong]

Yes I am a mortgage broker, and please feel free to ask me anything

It varies from lender to lender on how they calculate or what they allow you to use for commisions.

Your base salary of $50,000 is fine. As long as you can prove you receive that no matter what you are good to go.

Most lenders will take your last 2 years of commisions and take the average. So if you had $10,000 in commisions in 2008 and $20,000 in 2009. Then they would add $15,000 to your base salary.

However, more and more lenders are now taking the LOWER of your last 2 years commisions and using that. So for the example above they would use your $10,000 from 2008. Keep in mind the commisions have to be taxable income. They need to see them reported separately from your base income.

In your situation because you are new at that position it might be tricky because you don't have previous years commisions from the same job. However if it is a job in the same or similar industry I bet we could find a lender who would accept previous commision earnings.

Make sense?

Feel free to fire away with any other questions.
OP or anyone else who has them.....

[alltherage]

Originally Posted by Mike Oxlong

Yes I am a mortgage broker, and please feel free to ask me anything

It varies from lender to lender on how they calculate or what they allow you to use for commisions.

Your base salary of $50,000 is fine. As long as you can prove you receive that no matter what you are good to go.

Most lenders will take your last 2 years of commisions and take the average. So if you had $10,000 in commisions in 2008 and $20,000 in 2009. Then they would add $15,000 to your base salary.

However, more and more lenders are now taking the LOWER of your last 2 years commisions and using that. So for the example above they would use your $10,000 from 2008. Keep in mind the commisions have to be taxable income. They need to see them reported separately from your base income.

In your situation because you are new at that position it might be tricky because you don't have previous years commisions from the same job. However if it is a job in the same or similar industry I bet we could find a lender who would accept previous commision earnings.

Make sense?

Feel free to fire away with any other questions.
OP or anyone else who has them.....

First off, thank you very much for your reply. That makes perfect sense. It leads me to more questions.

When I was interviewed for this job, (we'll use the numbers from above for this- again totally random) I told them I was making $70,000 salary at my last job and wanted to make that here. What they did was structure my pay in a weird way: My salary goes down while my commissions % goes up. It gives me a chance to build my sales territory.

Basically (these numbers are mathimatically incorrect), but to give you an idea of what they did:

$5000.00 salary, 2% Commissions First month = $5833.34 ($70,000/yr)
$4500.00 salary, 4% Commissions Second Month = $5833.34 ($70,000/yr)
$4000.00 salary, 6% Commissions 3rd Month = $5833.34 ($70,000/yr)

So by the end of the year, I'm actually paid $60,000 in salary, and $10,000 in comissions. (Again, look at the concept not the numbers)

The next year I'll only be at $50,000 and $20,000 in comissions. The third year I'll be at $40,000 in salary and $30,000 in comissions.

Am I basically screwed to get approved with this crazy schedule?

[Kybosh]

No, but I did stay at a Holiday Inn Express last night.

[Mike Oxlong]

Originally Posted by alltherage

First off, thank you very much for your reply. That makes perfect sense. It leads me to more questions.

When I was interviewed for this job, (we'll use the numbers from above for this- again totally random) I told them I was making $70,000 salary at my last job and wanted to make that here. What they did was structure my pay in a weird way: My salary goes down while my commissions % goes up. It gives me a chance to build my sales territory.

Basically (these numbers are mathimatically incorrect), but to give you an idea of what they did:

$5000.00 salary, 2% Commissions First month = $5833.34 ($70,000/yr)
$4500.00 salary, 4% Commissions Second Month = $5833.34 ($70,000/yr)
$4000.00 salary, 6% Commissions 3rd Month = $5833.34 ($70,000/yr)

So by the end of the year, I'm actually paid $60,000 in salary, and $10,000 in comissions. (Again, look at the concept not the numbers)

The next year I'll only be at $50,000 and $20,000 in comissions. The third year I'll be at $40,000 in salary and $30,000 in comissions.

Am I basically screwed to get approved with this crazy schedule?

This is a little different...

Let me make sure I am understanding you.

So month 1 you get $5000 salary and 2% commisions - regardless of what you sell

Month 2 you get $4500 salary and 4% commisions - again regardless of what you sell.

Is that correct? Or do you have to sell a certain amount to get the increased commisions?

The lender is going to want some kind of guarantee that you are going to pull in at least $60,000. That is where their concern will lie.

If you prefer not to have your pay structure advertised for everyone to read feel free to PM me. Otherwise we can do this in public to try and educate the masses!

[Sylvanfan]

Is it still 25% down to avoid paying CMHC fees or are there some lenders who'll do 20%?

[Mike Oxlong]

No it is only 20%. It has been that way for at least 2 years I believe.
I'd have to look at exactly when they made the change but if you want to avoid CMHC or Genworth fees you need to have a 20% downpayment.

[alltherage]

Originally Posted by Mike Oxlong

This is a little different...

Let me make sure I am understanding you.

So month 1 you get $5000 salary and 2% commisions - regardless of what you sell

Month 2 you get $4500 salary and 4% commisions - again regardless of what you sell.

Is that correct? Or do you have to sell a certain amount to get the increased commisions?

The lender is going to want some kind of guarantee that you are going to pull in at least $60,000. That is where their concern will lie.

If you prefer not to have your pay structure advertised for everyone to read feel free to PM me. Otherwise we can do this in public to try and educate the masses!

Basically my comission goes up no matter what.

I actually asked my business owner (boss too) about this because I was really concerned. He said he could write a letter that just says everything I make is salary and support it with a T4 that lumps my salary and comission together.

I think I'll be good to go now... right?

Thanks again Mr. Oxlong

[old-fart]

Just want to throw a "kudo" in for for Mike Oxlong... a while ago I was considering restructuring my mortgage into a HELOC to allow me some greater flexibility in payments, etc. He answered all my questions, pros and cons, provided options, and was just generally an all around good guy even though he made nothing on the deal. I still owe him a beer.

Thanks again Mike. I highly recommend you set up some time with him and let him work his magic for your mortgage.

[Mike Oxlong]

Originally Posted by alltherage

Basically my comission goes up no matter what.

I actually asked my business owner (boss too) about this because I was really concerned. He said he could write a letter that just says everything I make is salary and support it with a T4 that lumps my salary and comission together.

I think I'll be good to go now... right?

Thanks again Mr. Oxlong

Almost. The lender will want to see a paystub that verifies your income as well. I think we can make it all work though.

I would reccomend getting pre approved though so we can see exactly what the lenders are going to say. We can also get a rate hold put in place for 120 days.

[Mike Oxlong]

Originally Posted by old-fart

Just want to throw a "kudo" in for for Mike Oxlong... a while ago I was considering restructuring my mortgage into a HELOC to allow me some greater flexibility in payments, etc. He answered all my questions, pros and cons, provided options, and was just generally an all around good guy even though he made nothing on the deal. I still owe him a beer.

Thanks again Mike. I highly recommend you set up some time with him and let him work his magic for your mortgage.

Hey No problem. I am happy to help out the CP community however I can.

I get lots of good info and resources from this place so I am happy to give back wherever I can.