Say you’re a Virginia agent carrying a $410,000 balance at 7.25%, and a lender quotes you 6.1% on a rate-and-term refinance. Your payment on principal and interest drops from roughly $2,798 to $2,485, a savings of about $313 a month. Over five years that’s nearly $18,800 in lower payments, and if your closing costs run around $6,200, you break even in month 20. The math works the same whether you’re salaried or commissioned. Getting approved for that rate is where things diverge, because commission income gets underwritten on a completely different set of rules than a W-2 paycheck.
Duane Buziak, NMLS #1110647, has spent years running refinance numbers for Virginia agents and brokers whose income doesn’t show up on a pay stub. This article walks through how underwriters treat commission and 1099 income, when a bank-statement loan makes more sense than a standard one, and how to time your application around your own closing calendar.
How Underwriters Treat Commission Income on a Refinance
If more than 25% of your income comes from commissions, self-employment, or 1099 work, most conventional underwriting treats you as self-employed for qualifying purposes, even if you technically work under a broker’s license. That means your refinance application gets evaluated on a two-year average, not your best recent quarter. Fannie Mae’s self-employed income documentation guidance generally calls for the two most recent years of federal tax returns, and underwriters average the qualifying income across both years rather than letting one strong year carry the file.
In practice, that means a lender will ask for your last two years of Schedule C forms (or 1099s if you’re paid as an independent contractor without a Schedule C), plus a year-to-date profit-and-loss statement covering the current calendar year. The P&L helps the underwriter confirm your business is still active and trending in a direction consistent with your tax returns. Some lenders also want three to six months of business or personal bank statements to cross-reference deposits against what you’re claiming.
Here’s where agents get tripped up: a declining year-over-year trend can slow down or complicate approval even when your most recent 12 months were excellent. Say you closed $95,000 in net commission income two years ago and $140,000 last year. That’s a straightforward average and an easy story for underwriting. Flip it, though, drop from $140,000 down to $95,000, and the underwriter has to dig into why, even if you know this year is shaping up stronger. They may ask for a letter of explanation, additional bank statements, or a longer P&L history before they’ll use the higher recent number instead of the two-year average.
The fix isn’t to hide a down year, it’s to document it. If you switched brokerages, took parental leave, or had a slow market stretch tied to inventory rather than your own production, a clear paper trail matters more than the number itself. Underwriters are looking for a defensible income figure, not a perfect one.
Bank-Statement Refinance Options When Tax Returns Understate Income
Plenty of agents run their business hard on paper: vehicle mileage, marketing spend, home office deductions, MLS and association dues, professional photography, staging costs. All of that is legitimate and smart tax planning, but it also shrinks the taxable income a conventional underwriter can use to qualify you for a refinance. If your Schedule C shows $60,000 in net income while your actual cash flow supports far more, a standard refinance may not get you the loan amount or rate you’re expecting.
This is where bank-statement, or non-QM, refinance programs come in. Instead of averaging tax returns, these programs typically look at 12 to 24 months of personal or business bank deposits and calculate qualifying income from actual cash flow, often applying an expense ratio rather than relying on your itemized deductions. The tradeoff is usually a somewhat higher interest rate and, in some cases, a larger down payment or equity cushion on a purchase, or a lower maximum loan-to-value on a refinance, in exchange for that documentation flexibility.
Whether a standard refinance or a bank-statement program produces the better outcome depends entirely on your specific tax returns and deposit history, and it’s not something you can guess at from a rate sheet. The practical first step is a soft-pull pre-qualification, which checks your scenario against both qualifying paths without a hard credit inquiry. That lets you compare a standard-doc rate against a bank-statement rate side by side before you commit to gathering two years of returns, a P&L, and bank statements for a full application. For agents juggling client closings, that upfront clarity saves real time.
Worked Example: Refinancing From 7.25% to 6.1% on a $410,000 Balance
Here’s the full math behind the example above, laid out as an illustration rather than a claimed client result. Suppose you refinanced into your current mortgage a few years ago at 7.25% on a 30-year fixed loan, and your balance today sits at $410,000. Principal and interest on that loan runs about $2,798 a month. A lender quotes you a new 30-year fixed rate of 6.1%, dropping your principal and interest payment to roughly $2,485 a month, a difference of $313 a month.
Over five years, staying at 7.25% costs you about $167,880 in principal and interest payments. Refinancing to 6.1% costs about $149,100 over that same five-year window, before accounting for the loan’s amortization differences between old and new balances. That’s a swing of nearly $18,800 in your favor over five years, not counting whatever additional benefit comes from a lower rate continuing to compound after year five if you keep the loan.
Closing costs on a refinance this size typically run in the range of $5,500 to $7,000 depending on title fees, appraisal, and lender charges. At $6,200 in closing costs and $313 in monthly savings, you divide one by the other: $6,200 ÷ $313 = roughly 19.8, so you break even in month 20. If you stay in the home past month 20, the refinance nets you money; if you’re likely to sell or refinance again before then, it may not be worth it.
For agents who’d rather not pay closing costs out of pocket, especially right after a slower closing season, a no-out-of-pocket closing options structure rolls those costs into a slightly higher rate instead of a wire transfer at closing. That trades a small piece of your monthly savings for zero cash due at the table. Running both scenarios, cash-paid closing costs versus rolled-in costs, side by side is exactly the kind of comparison a pre-qualification conversation should cover before you sign anything.
Cash-Out Refinance vs. HELOC for Funding Your Real Estate Business
Agents often ask about pulling equity out of their own home to fund marketing budgets, cover the gap between closings during a slow stretch, or handle costs tied to switching brokerages. Two tools do this: a cash-out refinance and a home equity line of credit. They work very differently.
A conventional cash-out refinance replaces your entire first mortgage and is capped at 90% loan-to-value. If you’re an eligible veteran, VA cash-out refinancing can reach 100% LTV, a meaningful difference for agents who also served. A HELOC, by contrast, sits as a second lien behind your existing first mortgage, leaving that original rate untouched.
- Cash-out refinance: Resets your entire loan balance and rate; one fixed monthly payment; conventional maxes at 90% LTV, VA up to 100% LTV; makes sense if your current rate is at or above today’s market rate.
- HELOC: Preserves your existing first-mortgage rate; variable-rate second lien; typically faster and cheaper to open; makes sense if your current first mortgage rate is well below today’s rates and you don’t want to disturb it.
A real comparison table helps make the tradeoff concrete:
| Feature | Cash-Out Refinance | HELOC |
|---|---|---|
| Lien position | First mortgage, replaces existing loan | Second lien behind existing first mortgage |
| Rate type | Fixed (typical) | Variable (typical) |
| Max LTV | 90% conventional, 100% VA | Varies by lender, often 80-90% combined LTV |
| Effect on existing rate | Replaces it entirely | Leaves it untouched |
| Best fit | Current rate is at or above market | Current rate is well below market |
Whichever route you choose, run the total interest cost over your expected timeline, not just the monthly payment. A HELOC used aggressively for marketing spend can carry a higher effective cost than a cash-out refinance if rates climb, while a full refinance resets 30 years of amortization on your entire balance, not just the cash you pulled out. Neither is automatically the right call for funding a real estate business, it depends on your existing rate and how quickly you plan to pay the borrowed amount back down.
Timing Your Refinance Around Commission and Closing Cycles
Because underwriters may request an updated P&L if your file sits open for a while, timing matters more for commissioned agents than for salaried borrowers. Applying shortly after a strong closing quarter, rather than heading into a traditionally slow season, gives you a cleaner recent trend line if the lender asks for updated documentation partway through underwriting. If you know spring and summer are your busiest months, submitting your refinance application in early fall while that income is still fresh on the books can smooth the process.
A refinance is also a natural moment to check your equity position for private mortgage insurance removal. Under the Homeowners Protection Act, you can generally request PMI cancellation once you reach 20% equity based on your home’s original value, and PMI must automatically terminate at 22% equity based on the original amortization schedule. If home values in your market have climbed since you bought, a refinance appraisal can document that equity gain and eliminate a monthly PMI payment you may not need anymore.
Local numbers matter here too. Conforming loan limits are set annually and vary by county, and higher-cost Virginia counties near Washington, D.C. carry limits above the baseline figure. For a Richmond-area county such as Henrico, checking the current FHFA conforming loan limit before you apply tells you whether your loan amount falls within standard conforming guidelines or needs to be structured differently. Pairing that with your county assessor’s current valuation on your property gives you a realistic read on your equity position before you ever talk to a lender.
Frequently Asked Questions From Self-Employed Agents
What credit score do I need to refinance as a 1099 agent?
Conventional refinances typically look for a credit score in the mid-600s or higher, though the exact minimum depends on your loan-to-value and overall file. A soft-pull pre-qualification will show you where you stand without affecting your score.
Can I refinance with only one year of tax returns?
Some programs allow it if you have a documented history in the same line of work, but standard conventional guidelines generally call for two years of returns to establish an income average. A bank-statement program may be a better fit if you’re short on tax return history.
Does a bank-statement refinance cost more than a standard one?
Typically yes, bank-statement programs often carry a somewhat higher rate in exchange for skipping tax return documentation. Whether that tradeoff makes sense depends on how much your tax returns understate your actual income.
Can I refinance while I’m between brokerages?
It’s possible, but a gap in your 1099 income stream can complicate underwriting, so a clear letter of explanation and updated bank statements help. Timing your application before or well after a brokerage transition tends to go more smoothly.
Will my write-offs hurt my ability to qualify?
They can, since underwriters use your net income after deductions, not your gross commissions. This is exactly the scenario where a bank-statement refinance can help if your write-offs are aggressive but legitimate.
How much equity do I need for a cash-out refinance?
Conventional cash-out refinances cap at 90% loan-to-value, meaning you generally need at least 10% equity remaining after the cash-out. VA-eligible agents can go up to 100% LTV.
Is Duane Buziak a mortgage broker or a mortgage lender?
Both. Duane operates as a broker who shops your scenario across hundreds of wholesale lenders to find the right fit for self-employed and commission-based income, while also having in-house and correspondent funding capability when that structure produces the better outcome for your file.
Do I need a business license to refinance if I’m a real estate agent?
No, your real estate license and brokerage affiliation are enough documentation on the employment side. Lenders focus on your tax returns and bank statements to verify income, not a separate business registration.
How long does a self-employed refinance take to close?
It typically takes longer than a W-2 refinance because of the added documentation review, often four to six weeks depending on how quickly you can supply tax returns, P&L statements, and bank records. Getting your paperwork organized upfront is the biggest factor in speeding it up.
What’s the fastest way to find out if I qualify?
A soft-pull pre-qualification gives you a personalized read on rate and qualifying path, standard versus bank-statement, without a hard credit inquiry or commitment. It’s the most efficient starting point before you gather two years of tax returns for a full application.
Commission Income Changes the Paperwork, Not the Outcome
Commission and 1099 income doesn’t close the door on a strong refinance, it just means the file gets built differently: two years of returns instead of one pay stub, a current P&L to show your trend, and possibly a bank-statement path if your write-offs run deep. Rates move, and the gap between 7.25% and 6.1% in the example above is exactly the kind of shift that’s worth checking your own numbers against today, before the market moves again.
Call (804) 212-8663 now for your free soft-pull rate analysis, no credit impact, no obligation, and find out whether refinancing can lower your monthly payment or put your home’s equity to work for your business.