Commission and Bonuses

Hey Brokers,
I was just curious how commission and bonuses are calculated when working out serviceability?

A couple of scenarios I have been playing in my head.

Scenario 1
Employee on a base of 50k and in the last financial year made an additional 30k on commission. This is reflected in the payment summary. Commission however is quite up and down, one month might be $500 and the next $3000.

Will lenders only consider recent commission or will they take the combined total of the past financial year? Therefore would calculate this serviceability at 80k.

This then brings me to my second question, what happens if someone has only been in their job for say 3 months and in that time has earned a lot of commission? Using the above scenario again, a base of 50k but in the past 3 months has earned 5k commission each month for a total of 15k. Will the lender look at this as 50k base + 5k*12months = 60k commision for a total of 110k?

Commissions and Bonuses just seem risky for a lender and can be quite seasonal so I was just curious how they calculate there effect on serviceability.

Thanks in advance
 
They all have very different policies and sometimes common sense comes into it ;)

Some will take the YTD from the latest payslip and annualise as long as there is 3 months or more history which can be very useful.

The key with most but not all is usually how often the payments are made. For example many lenders wont take annual bonuses into account but most would take monthly commissions if there is a 1 or 2 year history and as above some only need 3 months.
 
Depends on the LVR and the lender (more specifically if they have their own DUA or not). Also Real Estate agents are an exception to the rules due to their nature of employment.

Generally lenders will need to see 2 years worth of commission payments together with an employer letter confirming the amount, frequency and conditions. Lenders will take the lower of the commission payments over the 2 years if year 1 was lower and the average if year 2 is higher.

In this situation the preference is to go with a lender that has their own DUA and other lenders (who don't have their DUA) have to go by MI policy which is very strict.
 
Designated Underwriting Authority - means that a lender doesn't need to send the deal to Genworth/QBE for approval.

Cheers,
Redom
 
Back
Top