My Commission Is 70% of My Income — Does It Count?

Yes — commission income counts, and at 70% of your total earnings it's your primary income, not a bonus. The lender will use a 2-year average of your commissions (W-2 box 1 + 1099 totals, depending on how you're paid), then test whether that average is stable, increasing, or declining. A declining trend triggers a year-over-year review and usually means the lender uses the most recent (lower) year. The 25% threshold matters: when commission is more than 25% of total income, it's classified as "primary variable" income and underwriters scrutinize it harder. Documented correctly, commission-heavy borrowers qualify every day.

The handbook view (what the rules actually say)

Commission income is treated as "variable income" under agency guidelines. That's a defined category with explicit averaging and documentation rules:

• 2-year average is the baseline. Conventional lenders average commission over the most recent two years (most commonly two W-2s plus a year-to-date paystub, or two 1099s plus YTD if commission is paid via 1099). The averaging period can't shorten because you'd like a higher number — it's a rule. (Source: Fannie Mae Selling Guide B3-3.1-09, Other Sources of Income; Freddie Mac Single-Family Seller/Servicer Guide Chapter 5303.)
• Declining trend triggers a per-year review. If year 2 commission is materially lower than year 1, the underwriter must document the cause and may use the most recent (lower) year instead of the 2-year average. Sometimes the lender will decline to use commission income at all if the decline is significant and unexplained. (Source: Fannie Selling Guide B3-3.1-01 and B3-3.1-09.)
• 25% threshold = primary variable income. When commission is more than 25% of total income, agency guidelines classify it as primary variable income and require fuller documentation: signed federal tax returns covering the two-year averaging period, year-to-date paystub showing commission earnings separately, employer verification, and a written analysis of stability. (Source: Fannie Selling Guide B3-3.1-09; HUD Handbook 4000.1, II.A.4.c for FHA equivalent.)
• Sustained-earnings test. The underwriter must conclude that the commission income is reasonably likely to continue for at least the next three years. That conclusion is supported by the 2-year history plus current pace plus employer/industry context — not by hope. (Source: 12 CFR § 1026.43(c) ATR/QM rule requiring reasonable and good-faith determination of repayment ability; Fannie Selling Guide B3-3.1-01.)
• FHA mirrors the framework. HUD treats commission income greater than 25% of total effective income with the same 2-year history rule and analysis requirement; less than 25% is treated more like base pay. (Source: HUD Handbook 4000.1, II.A.4.c.xii Commission Income.)

The plain-English translation

What this means for someone whose paycheck is mostly commission:

• You can qualify. Commission-heavy borrowers buy homes constantly. The lender just needs two clean years of history and current-year evidence the run rate is holding.
• Your "qualifying income" will likely be lower than your best year. If you made $180K one year and $120K the next, the lender will use the average ($150K), not the high — unless the decline has a clear explanation that lets them treat the high year as representative.
• W-2 + 1099 combo is normal. Many commission earners get base salary on a W-2 and commission split between W-2 and 1099. Each income stream gets documented and analyzed on its own merits, then combined.
• Year-to-date matters. If you're halfway through the year and on pace below your 2-year average, the underwriter will notice. If you're on pace above it, you still don't get credit for the higher run rate until it's in a tax return.
• Unreimbursed business expenses can hurt. If you write off commission- related expenses on Schedule A or 2106 (or as a 1099 contractor on Schedule C), the lender subtracts those expenses from your commission income. This is the single most common reason a commission earner's qualifying income comes in below what they're expecting.

How commission income gets calculated

The table is a rule of thumb, not a quote. Actual qualifying income depends on the underwriter's analysis of stability, the written explanation for any trend changes, and unreimbursed-business-expense adjustments. The right move is to send your last two years of tax returns and the most recent paystub to a broker who runs the calc the same way the underwriter will.

Lender overlays — where the rules get tighter

The handbook rules above are the agency floor. Individual lenders impose "overlays" — tighter rules layered on top:

• Declining-income overlays: Agency guidelines allow the underwriter to use a declining 2-year average with written justification. Many retail lenders automatically exclude commission income any time year 2 is below year 1 — no analysis, no exception. As an independent broker we shop for the investor that will actually underwrite the file instead of bulk-rejecting it.
• Tenure overlays: Agency rule is a 2-year history of commission income in the same line of work. Some lenders impose a 24-month same-employer overlay even when you switched companies but stayed in the same role — which the rule allows.
• 1099 vs W-2 overlays: Commission paid via 1099 is technically self-employment income to the underwriter, even if you call yourself an employee. Some lenders require an additional year of history when 1099 commissions cross a threshold, even though the agency rule is still two years.
• DTI overlays: Agency programs allow DTI (debt-to-income) up to ~50% with AUS (automated underwriting system) approval and compensating factors. Some retail shops cap commission-heavy files at 43–45% DTI regardless of AUS.
• Manual-underwriting policies: If the AUS returns a "refer," only some lenders will manually underwrite a commission-heavy file. Brokers usually have access to wholesale investors that will.

Which lenders we actually use for this scenario

For a heavy-commission file, I'm picking from three lender typologies on our broker channel. The first is what I'd call the “common-sense underwriting” wholesale shop — the ones whose UW teams actually read the YTD pay stub, the W-2s, and the 1099s as a story instead of a checklist. Those are the desks where a 70%-commission borrower with a strong two-year average and a credible reason for any dip (slow Q1, territory change, parental leave) gets cleared the first time through.

The second typology is the agency-overlay-light wholesaler. These shops follow the published Fannie or Freddie guideline without piling extra rules on top. That matters here because some lenders bolt on overlays that, for instance, require commission income to be flat or rising on both tax years, not just the average — that's stricter than the guide actually says, and it cuts good borrowers out.

Third, when the file has a real declining-income problem or the borrower is in their first 18 months in a commission role, I look at non-QM (non-qualified mortgage) lenders that use a 12-month bank-statement program. You give up some rate to do it, but you're trading a clean approval for a guideline gymnastics exercise. For the right file, that trade is worth it.

Real-world cases

I've seen this pattern repeatedly: an inside sales rep, base around 30% of comp, the rest commission, two years on the desk, the most recent year stronger than the prior year. That file underwrites clean on a vanilla conventional loan — the 24-month average gets used and the rising trend means we don't have to argue about sustainability.

A typical case on the harder side: a mortgage loan officer (or real estate agent, financial advisor, recruiter — any of the heavy-commission roles) whose 2024 W-2 came in noticeably below 2023. Even if 2025 YTD looks like a recovery, the underwriter is going to use the lower of the two-year average or the most recent 12 months, and they may ask for a written explanation. I've seen this pattern where a one-paragraph letter from the borrower, plus a YTD pay stub showing the rebound, gets the file through. I've also seen it where the underwriter wouldn't budge and we had to move to a bank-statement program — same borrower, same income, different lender, approved.

Then there's the W-2-plus-1099 mix: salaried base from the employer, plus a 1099 side stream from the same industry. That file lives or dies on whether the underwriter treats the 1099 as continuation of the same line of work. I've seen this pattern where the 1099 income gets fully counted because it's clearly tied to the W-2 role, and I've seen the exact same setup get the 1099 stripped because the underwriter wanted two full tax years of it before counting a dollar. Lender choice matters more than the borrower's actual numbers here.

How the big retail lenders typically handle this

The big retail call-center lenders — the ones running national TV ads — tend to be the strictest on commission income, and not because the guideline says they have to be. They tend to be the strictest because they're running high volume on a checklist model, and the checklist is more conservative than the published Fannie guide. Heavy-commission borrowers get told “we need three years of returns” when the actual rule is two. Declining-income borrowers get declined outright when a broker channel desk would have asked for a letter of explanation and counted the lower of the two years.

The retail loan officer at a depository (a bank that holds your loan instead of selling it) sometimes has more flexibility than the call-center shop, but they're usually selling you their bank's program, not shopping the market. If their program happens to be commission-friendly, great. If it isn't, you'll get a polite “we can't help with this” and no alternative.

Pricing-wise, retail commission-income approvals tend to come in directionally higher than what we'd get on the same file through a wholesale desk — both because of the retail-channel margin stack and because retail lenders that will do these files often price them like they're taking extra risk. Broker channel doesn't price commission income as a risk-add when the file meets guideline, because at that point it isn't extra risk. It's just a documentation pattern, and we know which underwriting desks read those documents well.