Using Bonuses and Commission On Your Mortgage Application
High street mortgage lenders are famously strict with their lending rules. It can seem that unless you work in the kind of job that pays a substantial and regular salary, owning your own home is impossible. Thankfully that’s not the case, and with The Mortgage Hut you will find it’s a lot easier than you first though. We work with many customers for whom a large portion of their income come from commission or annual bonuses and we can help you get a deal too!
Obtaining a mortgage with a commission based income
How lenders view bonus income when determining mortgage eligibility
As each lender has their own terms, it is down to the individual provider how they consider your additional income. This is advantageous when working through a mortgage advisor like The Mortgage Hut as it provides a wide range of options that we can choose from and enables us to pick a mortgage deal that best fits your personal circumstance.
Examples of commission and bonus acceptance range as follows:
Full acceptance
Some lenders will consider your entire evidenced income, irrespective of source.
Full acceptance with cap
Often, lenders place a cap based on your salary for commission and bonuses. This may be 50%, 75% or 100% of your salary.
Any bonuses that exceed your base salary will be ignored for the purposes of determining your mortgage size, but are often taken into account when determining overall affordability.
For example, with a 75% cap, if your base salary is £23,000 and you make £2,000 per month in commission, only £17,250 of your annual commission will be counted, with the remaining £6,750 ignored for the purposes of mortgage size. The total income that will be used in calculations will be £40,750.
Monthly commission only
Some lenders choose to consider only commission paid monthly, as this regular payment is in line with your mortgage repayments. Others will consider monthly and quarterly, while some are happy to take annual bonuses and commission payments into account. It is important to make the timing of your commission payments known when you are looking for a mortgage.
Stable commission only
Depending on your job, your commission may be generally stable (showing to fluctuate less than 20% per month, for example), or may be extremely volatile, ranging from zero to thousands depending on your performance at work. Many lenders are more likely to accept your commission as income if it is shown to be stable, concerned that you might fall behind with mortgage payments if you are unable to keep up with your work targets for a while.
Examples of commission and bonus acceptance range as follows:
Full acceptance
Some lenders will consider your entire evidenced income, irrespective of source.
Full acceptance with cap
Often, lenders place a cap based on your salary for commission and bonuses. This may be 50%, 75% or 100% of your salary.
Any bonuses that exceed your base salary will be ignored for the purposes of determining your mortgage size, but are often taken into account when determining overall affordability.
For example, with a 75% cap, if your base salary is £23,000 and you make £2,000 per month in commission, only £17,250 of your annual commission will be counted, with the remaining £6,750 ignored for the purposes of mortgage size. The total income that will be used in calculations will be £40,750.
Monthly commission only
Some lenders choose to consider only commission paid monthly, as this regular payment is in line with your mortgage repayments. Others will consider monthly and quarterly, while some are happy to take annual bonuses and commission payments into account. It is important to make the timing of your commission payments known when you are looking for a mortgage.
Stable commission only
Depending on your job, your commission may be generally stable (showing to fluctuate less than 20% per month, for example), or may be extremely volatile, ranging from zero to thousands depending on your performance at work. Many lenders are more likely to accept your commission as income if it is shown to be stable, concerned that you might fall behind with mortgage payments if you are unable to keep up with your work targets for a while.
How your income size affects your mortgage
Understanding affordability – how income affects your deal
An important calculation for the mortgage lenders is your affordability. This can be thought of as the difference between your regular income and your outgoings. If you reach the end of each month in your overdraft and desperate for the next pay cheque then your affordability is low and the terms of your mortgage will be less favourable. If you have plenty of spare cash in the run up to pay day, then your affordability is high and you’ll find there’s a range of mortgages to choose from with great rates.
It’s worth spending a few months living a little tighter so that when you make your application, your affordability is the best it can be.
It’s worth spending a few months living a little tighter so that when you make your application, your affordability is the best it can be.
Proving your income – making sure you have evidence
Part time jobs and bonus income
Many part time jobs use a bonus system for bumping up the basic salary. One typical example is in the service industry, where shift work and tips are the norm. Like sales commission, tips represent a fluctuating (but sometimes stable) additional working income.
It is not unusual to find that tips go unreported, especially those given in cash. If you are looking to obtain a mortgage, however, it is important that all your income is properly detailed and verified. Unofficial tips, rather than improving your chances and boosting your affordability, could simply fail to be considered, leaving you short for your intended mortgage.
When you have a part time job and smaller salary, every additional proof of income you can produce will help. The friendliest lenders will take it all into consideration, so make sure you properly declare and document all your income.
It is not unusual to find that tips go unreported, especially those given in cash. If you are looking to obtain a mortgage, however, it is important that all your income is properly detailed and verified. Unofficial tips, rather than improving your chances and boosting your affordability, could simply fail to be considered, leaving you short for your intended mortgage.
When you have a part time job and smaller salary, every additional proof of income you can produce will help. The friendliest lenders will take it all into consideration, so make sure you properly declare and document all your income.
Commission lending specialists and bad credit
At The Mortgage Hut we work with many specialist lenders willing to take commission into account, and we work with lenders happy to look at bad credit applicants. The crossover of those who take on both, however, is a lot smaller.
Thankfully, it does exist.
When talking to us about your mortgage, make sure you are open and honest about everything you feel could be a problem and we’ll be able to properly target the right mortgage lenders for you.
For more information on bad credit mortgages, read our articles here.
Thankfully, it does exist.
When talking to us about your mortgage, make sure you are open and honest about everything you feel could be a problem and we’ll be able to properly target the right mortgage lenders for you.
For more information on bad credit mortgages, read our articles here.
More advice on bonus and commission-based mortgages from The Mortgage Hut
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