How lenders count overtime, bonus and commission income

Can a lender count my overtime, bonus or commission?

Usually, if you have a history of earning it. For conventional loans, Fannie Mae recommends a two-year history of bonus, commission, overtime or tip income. Less than two years, but at least 12 months, can work when other strengths in your file offset the shorter history. For FHA loans, HUD counts this income when you've received it for two years and it's likely to continue, or for at least one year if you've earned it consistently.

How is variable income averaged?

The lender adds your year-to-date earnings to last year's and divides by the number of months covered, using at least 12 months of income. An annual bonus is turned into a monthly amount first, so a once-a-year bonus is divided by 12. For FHA, the lender uses the lower of your longer average and your most recent year's average.

What if my overtime or commission went down this year?

A drop gets a closer look. Fannie Mae requires the lender to confirm the income has stabilized; if it has, the lender uses the lower, current level. If it's still falling, that income may not count at all. If your employer cut overtime across the board, or your commission plan changed, tell Tom up front so the numbers are right from the start.

I'm paid hourly and my hours change. How is that counted?

When your hourly rate is fixed but your hours vary, Fannie Mae treats it as variable base income and requires at least a 12-month history. The lender can average your earnings or multiply your average monthly hours over the last 12 months by your current rate. If your employer guarantees your hours, it's treated like a regular salary and no minimum history is required.

Can a second job or part-time job count?

Yes. A two-year history is recommended for each income source, and at least 12 months can be accepted with offsetting strengths. If the second job changed employers, Fannie Mae doesn't allow a gap longer than one month in the most recent 12 months, unless the work is seasonal.

What about seasonal work?

Plenty of New Hampshire jobs follow the seasons, from landscaping and construction to ski areas and summer tourism. Fannie Mae requires a two-year history of seasonal income and averages it over that time. Unemployment benefits tied to regular seasonal layoffs can count too, if they're expected to recur and show on your tax returns.

What should I gather?

• Your most recent pay stubs, showing year-to-date earnings
• W-2s for the last two years from every job
• Any written bonus or commission plan from your employer
• Tax returns if you have tips not reported by your employer or seasonal unemployment

The lender also confirms your job with your employer before closing. Changing jobs soon? Read getting a mortgage with a new job first.