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BlueDiamonds
mommy to 3 boys
Member since 2/07 3885 total posts
Name:
proud mommy
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Budgeting Question for those with commission salaries
My DH and I plan to start house hunting this spring and I am trying to figure out how much we could afford for a mortgage payment. I have a good idea about the costs of home buying, what I am struggling with is estimating an income. I work on salary. My DH is in sales, and although he has a base salary, most of his income is from commission.
For anyone else in a similar situation, how are you estimating your income? If I just use base salaries, we couldn't afford much here on LI. I can't use an average over the past years b/c he is making more now than he ever did (due to job change, promotions, etc). I am afraid if I just use last year's numbers and he has a bad year next year, we could be in over our heads.
Any advice?
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Posted 8/8/07 11:01 AM  |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: Budgeting Question for those with commission salaries
My DH is on straight commission and it can lead to some tense moments, but fortunately his income has been pretty consistant as to the minimum. You might want to consider what an average minimum amount would be and look in that range. I would also suggest that you have a higher than normal savings account you can draw upon if times are tight. They say you should have 3 - 5 months living expenses in saving - maybe consider having 6 - 8 months available, just to help weather the ups and downs. Once you close, consider getting a HELOC (home equity line of credit). You don't want to live off that, but if he has one or two bad months and you have some unexpected expenses, it would be there for you to draw upon.
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| Posted 8/8/07 6:34 PM |
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lorich
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Member since 6/05 9987 total posts
Name:
Grammie says "Lora Gina"
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Re: Budgeting Question for those with commission salaries
We had the same situation.
We actually went to meet with Lynn Law at LIHP. She reviewed 3 years of salaries along with other info. It helped to speak to someone who knows not only the market, etc, but understood the stress we were feeling about making such a huge decision based on a commission salary.
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| Posted 8/8/07 8:14 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: Budgeting Question for those with commission salaries
Posted by KLSbear
My DH is on straight commission and it can lead to some tense moments, but fortunately his income has been pretty consistant as to the minimum. You might want to consider what an average minimum amount would be and look in that range. I would also suggest that you have a higher than normal savings account you can draw upon if times are tight. They say you should have 3 - 5 months living expenses in saving - maybe consider having 6 - 8 months available, just to help weather the ups and downs. Once you close, consider getting a HELOC (home equity line of credit). You don't want to live off that, but if he has one or two bad months and you have some unexpected expenses, it would be there for you to draw upon.
I was going to base it off a bad year- not a good year!
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| Posted 8/8/07 8:38 PM |
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Teri
my girls!
Member since 2/06 1491 total posts
Name:
Teri
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Re: Budgeting Question for those with commission salaries
DH is on a base plus commission....sales field. I'm a SAHM so it was tricky when house hunting! We budgeted without any commissions actually and just went off base salary because DH is really anal about that stuff and didn't want to look at it as income since it can change so much.
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| Posted 8/8/07 9:16 PM |
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BlueDiamonds
mommy to 3 boys
Member since 2/07 3885 total posts
Name:
proud mommy
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Re: Budgeting Question for those with commission salaries
Thanks for the replies. I'm not sure if we will consider commission or not (more than half of DH's salary will be commission), but we will definitely use a bad year scenario and just bank the leftover.
And as far as having extra $ in the bank to play with, that's a great idea. I wasn't sure how much to have leftover after down payment and closing costs but 6 months sounds like a good idea.
We will definitely talk to LIHP just to see if there are any first time home buyer programs out there and also see what they recommend.
I feel like this process is so stressful!
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| Posted 8/9/07 12:27 PM |
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lullabella
LIF Adult
Member since 5/05 2246 total posts
Name:
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Re: Budgeting Question for those with commission salaries
Posted by KLSbear
My DH is on straight commission and it can lead to some tense moments, but fortunately his income has been pretty consistant as to the minimum. You might want to consider what an average minimum amount would be and look in that range. I would also suggest that you have a higher than normal savings account you can draw upon if times are tight. They say you should have 3 - 5 months living expenses in saving - maybe consider having 6 - 8 months available, just to help weather the ups and downs. Once you close, consider getting a HELOC (home equity line of credit). You don't want to live off that, but if he has one or two bad months and you have some unexpected expenses, it would be there for you to draw upon.
I am in the same situation, we just pull from savings when we need too.
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| Posted 8/9/07 1:19 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: Budgeting Question for those with commission salaries
Posted by BlueDiamonds
Thanks for the replies. I'm not sure if we will consider commission or not (more than half of DH's salary will be commission), but we will definitely use a bad year scenario and just bank the leftover.
And as far as having extra $ in the bank to play with, that's a great idea. I wasn't sure how much to have leftover after down payment and closing costs but 6 months sounds like a good idea.
We will definitely talk to LIHP just to see if there are any first time home buyer programs out there and also see what they recommend.
I feel like this process is so stressful!
I am not sure if these programs exsist anymore- but we have talked about doing an interest only mortgage or an option/arm (I think that's right)
in a bad month- we pay the interest only
on a good month- we pay 2 or 3 times what we pay on a bad month
there are some mortgages that are set up with both options
my DH makes comission only (or if he takes this new job a $30K salary) so it's really hard for me to figure this out
Luckily I make a decent amount- but now that we are getting ready to buy- I am scared
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| Posted 8/9/07 1:29 PM |
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counselor74
LIF Adolescent
Member since 5/07 806 total posts
Name:
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Re: Budgeting Question for those with commission salaries
You are going to have to show tax returns for past 2 years when you apply for a mortgage. The bank is going to figure out what you can afford based on that. Commission appears as income on yor taxes unless it's in the form of cash and isn't being reported. There are no income check mortgages for people that have money they can't "legally" account for. With the subprime mortgage crunch right now, I am not sure if those are even still available.
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| Posted 8/9/07 1:40 PM |
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charon54
My two boys!
Member since 5/05 7279 total posts
Name:
Rebecca
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Re: Budgeting Question for those with commission salaries
Posted by counselor74
You are going to have to show tax returns for past 2 years when you apply for a mortgage. The bank is going to figure out what you can afford based on that. Commission appears as income on yor taxes unless it's in the form of cash and isn't being reported. There are no income check mortgages for people that have money they can't "legally" account for. With the subprime mortgage crunch right now, I am not sure if those are even still available.
\
Be aware that this interest rates on a no income mortgage are going to be much higher than on a conventional mortgage. Same thing with an interest only mortgage.
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| Posted 8/9/07 1:50 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: Budgeting Question for those with commission salaries
Posted by counselor74
You are going to have to show tax returns for past 2 years when you apply for a mortgage. The bank is going to figure out what you can afford based on that. Commission appears as income on yor taxes unless it's in the form of cash and isn't being reported. There are no income check mortgages for people that have money they can't "legally" account for. With the subprime mortgage crunch right now, I am not sure if those are even still available.
right- but I think what some of us are saying- we don't care what the bank says we can afford- it's what WE feel comfortable with
what if the last 2 years were great- (which our tax returns for 05 and 06 VERY different) and 07 is the worst year ever- or vice versa
no one is trying to hide comission- we all pay taxes on it- but that doesn't mean we want to base our mortgage on it
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| Posted 8/9/07 2:19 PM |
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NJmom
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Member since 8/05 4987 total posts
Name:
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Re: Budgeting Question for those with commission salaries
I would base how much you can afford off of a bad year and I'd only feel comfortable if there was also money in the bank as a cushion just in case.
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| Posted 8/9/07 3:56 PM |
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BlueDiamonds
mommy to 3 boys
Member since 2/07 3885 total posts
Name:
proud mommy
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Re: Budgeting Question for those with commission salaries
Posted by Beth1210
Posted by counselor74
You are going to have to show tax returns for past 2 years when you apply for a mortgage. The bank is going to figure out what you can afford based on that. Commission appears as income on yor taxes unless it's in the form of cash and isn't being reported. There are no income check mortgages for people that have money they can't "legally" account for. With the subprime mortgage crunch right now, I am not sure if those are even still available.
right- but I think what some of us are saying- we don't care what the bank says we can afford- it's what WE feel comfortable with
what if the last 2 years were great- (which our tax returns for 05 and 06 VERY different) and 07 is the worst year ever- or vice versa
no one is trying to hide comission- we all pay taxes on it- but that doesn't mean we want to base our mortgage on it
exactly, it's all legit. the point is that it's so unpredictable it makes committing to a mortgage payment very scary! i have a hard enough time budgeting our household as it is. every month is different from the last.
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| Posted 8/9/07 5:58 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: Budgeting Question for those with commission salaries
exactly, it's all legit. the point is that it's so unpredictable it makes committing to a mortgage payment very scary! i have a hard enough time budgeting our household as it is. every month is different from the last.
I feel your pain - it's so hard- I find it almost impossible to budget!
I will never be able to stop working and be a SAHM- b/c I woud never sleep!
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| Posted 8/9/07 11:01 PM |
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BlueDiamonds
mommy to 3 boys
Member since 2/07 3885 total posts
Name:
proud mommy
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Re: Budgeting Question for those with commission salaries
Posted by Beth1210
exactly, it's all legit. the point is that it's so unpredictable it makes committing to a mortgage payment very scary! i have a hard enough time budgeting our household as it is. every month is different from the last.
I feel your pain - it's so hard- I find it almost impossible to budget!
I will never be able to stop working and be a SAHM- b/c I woud never sleep!
We were just talking about this the other day and no matter how well DH does with his career, we would never feel comfortable with me being a SAHM. I did mention that eventually I would like to switch careers to something I enjoy more but maybe wouldn't pay as well.
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| Posted 8/10/07 12:16 PM |
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