Qualifying With Bonus, Commission and Overtime
Base salary is the smaller half of your income. Variable pay counts too, and it is documented differently than most lenders bother to explain.
Quick answer
Saxton Mortgage does. At least one conventional program we offer follows Fannie Mae, where a two-year history of overtime, bonus, or commission income is recommended, but as little as 12 months can count when positive factors offset the shorter history. Stable or rising income is averaged using your year-to-date and prior-year earnings. If it has dropped, it counts only once the lender confirms it has stabilized.
Variable pay is qualifying income
It just has to be documented as a pattern, not a windfall.
- Overtime, bonus, and commission income can all be used to qualify when there is a documented history of receipt.
- A two-year history is the standard across nearly every program.
- A written verification of employment breaking out the variable pay is usually required, not optional.
- The calculation is an average, and the earnings trend drives how conservative that average is.
- Guaranteed bonus income at a new employer in the same field can count when it is written into an employment contract and the prior bonus history is documented.
- A shorter history of twelve to twenty-four months is possible on some programs with strong compensating factors.
Commission-based earners
Annual and quarterly bonuses
Overtime and shift differential
Written verification of employment
Trend analysis done properly
Annual bonus divided across 12 months
The Three Things Underwriting Looks At
History, continuance, and direction. Get all three right and the income counts.
History comes first. Two years of receipt is the benchmark, evidenced by pay stubs, W-2s, and in most cases a written verification of employment that breaks the variable pay out by year. Some programs will accept year-ending pay stubs from the prior two years in place of the verification. A borrower who has been with the same employer at least twelve months and has variable pay for at least twelve months can sometimes qualify on the shorter history, but that path requires documented compensating factors.
Continuance is the second test. If the employment verification says the bonus or commission is unlikely to continue, the income cannot be used regardless of how long you have received it. This is the single most common reason a well-earning borrower gets a smaller loan than expected, and it usually traces back to how the employer filled out one line on a form.
Direction is the third and it is where programs differ most. If the trend is stable or rising, the income gets averaged. If it declined and then leveled off, the current lower amount is used. If it is still declining, some programs use the lowest year, some use the most recent twelve months, and at least one treats the income as ineligible entirely. A letter of explanation is generally required either way.
Why variable income files go sideways
Six problems we see on bonus and commission files, and what fixes them.
The Employer Filled Out The Verification Carelessly
A checkbox indicating the bonus may not continue can erase years of documented income. It is worth talking to your employer before the verification goes out so the form reflects reality.
An Annual Bonus Was Averaged Monthly By Mistake
If your bonus arrives once a year, the correct treatment is to annualize the amount shown on the current pay stub, not to divide an old figure across months. Getting this wrong understates the income.
One Down Year Was Averaged With One Good Year
When income is declining, most guidelines do not permit blending a strong prior year with a weaker current one. The conservative figure is used. Knowing this in advance changes which loan amount you should be shopping for.
The Borrower Changed Employers
A move to a new company in the same line of work is workable, but it needs the prior bonus history documented and, for guaranteed bonus income, an employment contract. Moving into a different field is harder.
Ownership Tipped The Borrower Into Self-Employed
A twenty-five percent or greater ownership interest in the business makes you self-employed for underwriting purposes, which is a different documentation track entirely regardless of how you are paid.
No Written Verification Was Ordered
Nearly every program requires a written verification of employment specifically when variable income is used. Filing without it guarantees a condition and delays closing.
Hear From Homeowners Like You
Frequently Asked Questions
Questions from borrowers whose pay is not just salary.
Saxton Mortgage does. At least one conventional program we offer follows Fannie Mae, where a two-year history of overtime, bonus, or commission income is recommended, but as little as 12 months can count when positive factors offset the shorter history. Stable or rising income is averaged using your year-to-date and prior-year earnings. If it has dropped, it counts only once the lender confirms it has stabilized.
Fannie Mae recommends two years of commission, bonus or overtime history but accepts as little as 12 months when positive factors offset the shorter record. One non-QM program lets two years of commission earned in that field qualify you even if you joined your current employer more recently.
Possibly, but Fannie Mae counts declining commission only after it has stabilized, using year-to-date income divided by the months since it leveled off. FHA counts whichever is smaller: the two-year commission average or the latest 12 months. A signed letter explaining any large swing is required at one program.
A promised bonus from a new job usually cannot count yet: if you close before your first paystub, Fannie Mae allows only fixed base income. That route only fits a single-unit purchase you will occupy as your principal residence, and the new job must start by day 90 after closing.
Yes, overtime and bonus share one set of rules for documentation, history and averaging at both Fannie Mae and FHA. FHA compares the two-year average with the latest year and uses the lower one. Commission has its own FHA standard: at least one year in the same or similar line of work.
No, Fannie Mae wants a completed Form 1005 verification of employment, or your latest paystub plus your two most recent W-2s, along with a verbal check. Under one non-QM program, the written verification should break out bonus and overtime for each of the last two years. If it says the income is unlikely to continue, the income is dropped.
Yes, FHA counts part-time income when you have held the part-time job without a break for two years and it is likely to continue. FHA averages it over two years, or uses a 12-month average of hours at a documented higher pay rate. Fannie Mae accepts as little as 12 months on a second job when positive factors offset it.
Yes, one program that finances investment properties accepts Fannie Mae Form 1005, the written employment verification, with a 660 minimum credit score for that option. That program covers owner-occupied homes and second homes too. Fannie Mae still recommends a two-year record for that pay. Learn more about second homes.
Find out what you qualify for
Send us two years of W-2s and a recent pay stub showing year-to-date earnings. We will calculate the variable income the way an underwriter will, flag any trend issue before it becomes a condition, and tell you what the real number is.
Get Pre-QualifiedHistory requirements, documentation requirements, and the treatment of declining income vary by loan program and investor and are subject to change. Not every program permits variable income on every occupancy type. Not all applicants will qualify. This is not a commitment to lend.