FHA Commission Income: The One-Year Rule Most Lenders Misquote

A borrower is two weeks from closing when the file gets kicked back: commission income doesn't count, not enough time in the role. If you've been following FHA commission income questions on this site, you've likely seen some version of this play out, often over a misunderstanding of what HUD 4000.1 actually requires.

The Exact Language, No Paraphrasing

Section II.A.4.c.ix of HUD 4000.1 states: "The Mortgagee may use Commission Income as Effective Income if the Borrower earned the income for at least one year in the same or similar line of work and it is reasonably likely to continue. The Mortgagee must calculate Effective Income for commission by using the lesser of: the average Commission Income earned over the previous two years (or the length of time earned if less than two years); or the average Commission Income earned over the previous year."

Two separate things are happening in that passage, and conflating them is where most denials come from.

Eligibility vs. Calculation

The eligibility threshold is one year in the same or similar line of work, with reasonable likelihood of continuance. That's it. That's the bar for whether commission income can be used at all.

The calculation method is separate. Once eligibility is established, the lender computes effective income using the lesser of the two-year average or the one-year average. If the borrower has less than two years in the role, the guideline explicitly allows using the length of time actually earned for that average. These are two different steps answering two different questions, and treating the calculation language as an eligibility requirement is the single most common error.

Same or Similar Line of Work

"Same or similar line of work" is doing a lot of work in this guideline. A borrower who moved from one commission-based sales role into a comparable commission-based sales role doesn't start the clock over. A situation that comes up often involves a borrower with fourteen months in a current role and a prior stretch in a similar sales position; combined, that history can satisfy the one-year standard, provided the lender properly documents the similarity.

What to Ask Before You Accept a Decline

If your commission income gets flagged, don't take a verbal no at face value. Ask directly: "Have I earned this income for at least one year in the same or similar line of work, and are you calculating it using the lesser of my two-year average or my one-year average, per FHA Section II.A.4.c.ix?" Request the answer in writing. A lender who can't answer that specifically, or who answers it incorrectly, may be applying the wrong standard to your file.

Documentation That Supports the History

Establishing "similar line of work" usually means pulling together employment history that shows the commission structure, the industry, and the nature of the sales role across both positions. The stronger that documentation, the easier it is for underwriting to connect the dots without a manual explanation later in the process.

Bottom Line

The two-year figure in this guideline is a calculation input, not a gatekeeper. If you're commission-based with under two years in your current role, your income may still be fully usable. Confirm it with the exact question above, get it in writing, and don't let a surface-level read of the guideline cost you a closing.

Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.