Commission Calculation, Documentation, and AUS Rules
Commission Income on a VA Loan: How Lenders Calculate and What You Need
Lenders average your commission income over 24 months when qualifying you for a VA loan. If your commission makes up more than 25% of total income, a two-year history is required. Declining commission trends can reduce or eliminate the income a lender will use, even if recent months were strong.
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The Bottom Line Up Front
Commission income can qualify you for a VA loan, but the documentation requirements are stricter than salaried income. Lenders need a two-year history of commission earnings, and AUS uses the average of those two years as qualifying income. If your commission income is declining year over year, the lender may use the lower year or decline to count it entirely.
The core rule is stability and continuity. Commission income that has been consistent or increasing for at least 24 months is the strongest profile. Income that spiked one year and dropped the next creates underwriting friction because the lender cannot predict future earnings from an unstable trend.
- Minimum history: Most lenders require 24 months of commission income documented by tax returns and employer verification
- Calculation method: AUS typically averages the most recent 24 months of commission earnings, using the lower figure if income is declining
- Documentation: Two years of W-2s, two years of tax returns, current pay stub showing year-to-date commission, and a written VOE from the employer confirming commission structure
- Threshold: If commission represents more than 25% of total compensation, the full two-year averaging requirement applies
What Counts as Commission Income on a VA Loan
Commission income is any compensation tied to sales performance, production volume, or transaction completion rather than a fixed hourly or salary rate. It includes straight commission, draw against commission, and base-plus-commission structures.
If your base salary is $40,000 and your commission adds $60,000, commission represents 60% of your total income. Because that exceeds the 25% threshold, the lender must document and average the commission portion separately from the base. The base salary qualifies on its own with standard pay stubs. The commission requires the full two-year treatment.
The most common version of this I see is a borrower in auto sales, real estate, or financial services where commission makes up the majority of their compensation. These files qualify routinely when the documentation is complete, but they stall when the borrower assumes a single good year is enough to prove the income.
How Lenders Calculate Commission Income
The standard calculation averages commission earnings over the most recent 24 months. The lender pulls this from your tax returns, specifically the W-2 box for wages and the pay stub for year-to-date figures.
Here is how the math works on a typical file:
| Year | Commission Earned | Monthly Average |
|---|---|---|
| 2024 | $72,000 | $6,000 |
| 2025 | $84,000 | $7,000 |
| 24-Month Average | $156,000 / 24 | $6,500 |
The $6,500 monthly average is the qualifying income figure. If year-to-date earnings for 2026 are tracking above that average, the lender uses the two-year figure. If year-to-date is tracking below, the lender may reduce the qualifying amount to the current pace.
Approval Watchpoint
Declining commission income is the single biggest qualification risk on these files. If 2025 commission was $84,000 but 2024 was $96,000, the lender may use the lower year ($84,000 / 12 = $7,000) or average the two years and flag the downward trend for additional explanation. A letter explaining why income dropped and evidence it has since recovered strengthens the file.
The 25% Rule for Commission Income
When commission makes up more than 25% of your total gross income, lenders treat it as variable income and apply the two-year documentation standard. Below 25%, some lenders may accept it with less documentation, though most still want at least 12 months of history.
The 25% threshold matters because it determines how much paperwork prepare before applying. If you earn a $75,000 base and receive $15,000 in annual commission (17% of total), some lenders will count the commission with just a current pay stub and one year of history. If the split is $50,000 base and $50,000
On files I work where the commission percentage is borderline around 25%, I recommend preparing the full two-year documentation regardless. If AUS asks for it during underwriting and you do not have it ready, the delay can cost you a rate lock extension.
do not have it ready, the delay can cost you a rate lock extension.
What Documentation You Need
The documentation package for commission income is more extensive than salaried income. Missing any piece delays underwriting.
- Two years of federal tax returns (1040 with all schedules) showing commission income reported
- Two years of W-2s confirming employer-reported wages match the tax returns
- Most recent 30 days of pay stubs showing year-to-date commission earnings and base salary breakdown
- Written Verification of Employment (VOE) from the employer confirming the commission structure, how long the borrower has been in the role, and whether the structure is expected to continue
- Employer letter or contract describing the commission plan if the VOE does not include enough detail
If you are with the same employer for both years, the documentation is straightforward. If you changed employers within the two-year window, you need the above from both employers, and the lender evaluates whether the income is likely to continue at the current level based on the transition.
File Guidance
Start assembling your commission documentation before you house-hunt. The two-year tax return and W-2 package takes most borrowers a week to gather if they have not already filed. Having it ready at application prevents the most common delay on commission income files.
When Commission Income Cannot Be Used
Not all commission income qualifies. Lenders will exclude or reduce commission in these scenarios:
- Less than 12 months of history: If you started earning commission less than a year ago, most lenders will not count it regardless of how strong the recent months look
- Declining trend with no explanation: A year-over-year drop without a documented reason (such as a market downturn that has since recovered) gives the lender grounds to use zero or the lower figure
- Employer change with industry change: Switching from salaried work to a commission role in a new industry restarts the clock on the two-year requirement
- 1099 commission income: If you receive commission as an independent contractor (1099) rather than a W-2 employee, the income is classified as self-employment income with its own documentation rules, including Schedule C and business expense deductions
Files I see where commission income gets excluded are almost always borrowers who recently transitioned into a commission-heavy role. The income may be strong on paper, but without 24 months of documented history, the lender cannot use it for qualification.
Commission Income on VA Loans vs Conventional and FHA
The commission income rules are similar across VA, FHA, and conventional loans because the documentation standard comes from AUS (DU or LP), not the loan program. However, VA loans have two advantages for commission earners:
- No down payment: Commission earners who qualify based on their two-year average can still get 100% financing, which preserves cash reserves that might be needed during lower-commission months
- Residual income test: The VA residual income requirement can actually help commission borrowers by providing a second qualification path. Even if DTI is high, strong residual income above the regional guideline can push the file to approval
- No PMI: Eliminating PMI reduces the monthly payment, which helps the DTI calculation on files where the commission average is borderline for the loan amount
The Bottom Line
Commission income qualifies for a VA loan when it has a documented two-year history that is stable or increasing. Prepare your tax returns, W-2s, pay stubs, and employer verification before applying. If your commission represents more than 25% of total income, expect the full two-year averaging calculation. Declining trends require explanation. A strong file with consistent commission history, clean documentation, and healthy residual income gets through AUS the same way any other income type does.
Frequently Asked Questions
Can I use commission income if I have been in my job for only one year?
Most lenders require 24 months of commission history. Some will consider 12 months if the commission is a small percentage of total income and the employer verifies the structure is expected to continue. Under 12 months, commission income typically cannot be used for qualification.
Does the lender use my best year or my average?
The standard method is a 24-month average. If income is declining, the lender may use the lower of the two years or the current year-to-date pace, whichever produces the more conservative figure. An increasing trend uses the average.
What if my commission dropped one year due to COVID or a market downturn?
A documented one-time drop with subsequent recovery can be explained in a letter of explanation. If the lender can see that 2024 and 2025 returned to pre-drop levels, the averaging calculation may exclude or weight the anomaly year less heavily. The key is evidence that the drop was temporary and the income has recovered.
Is draw against commission treated as salary or commission?
A draw is an advance against future commission. If the draw is recoverable (meaning you owe it back if you do not earn enough commission), lenders treat the income as commission and apply the two-year averaging standard. A non-recoverable draw may be treated as guaranteed base salary by some lenders.
Can I combine commission income with a spouse’s salary to qualify?
Yes. On a joint application, both incomes are combined for DTI and residual income calculations. Your commission income still needs to meet the two-year documentation standard independently, but the spouse’s stable salary strengthens the overall file.
Do I need to be in the same industry for two years, or the same employer?
Same industry is the standard, not same employer. If you moved from one commission-based sales role to another in the same field, lenders generally treat the income as continuous. Switching industries resets the two-year clock because the lender cannot assume the commission level will carry over.
What if my year-to-date commission is much higher than my two-year average?
The lender uses the two-year average as the qualifying figure, not the current pace, unless the increase can be documented as a permanent change (such as a promotion or territory expansion with a written employer confirmation). A single strong quarter does not override the averaging standard.