However, while some lenders will accept RSUs and bonus income as part of your mortgage loan or refinance application, there are certain rules you will need to follow. And lenders have different ways of calculating RSU and bonus income.
What are RSUs?
High-tech companies and large corporations may offer their employees Restricted Stock Units (RSU) as an additional form of compensation. Simply put, RSUs are company stock that is not fully vested but can and will be in the future. Normally, employees need to wait for a certain amount of time known as the vesting period for the stocks to become officially theirs. Once vested, they are yours and you can decide whether to convert them into cash or hold onto them.
When can I use RSUs in loan applications?
For a lender to consider your RSU as part of your income, here are few general conditions that must be met:
The employer that granted you restricted stock must be a public company.
Performance-based vesting: You must have at least 2 consecutive years of vested RSUs with the same employer
Time-based vesting: You must have 1 year of vested RSUs
Your RSU income must be forecasted to continue at a similar level for the next 3 years.
RSUs must make up less than 35% of your total income.
You must provide the lender with a vesting schedule, pay stubs from the last 2 years, W2 forms, tax returns, and a Restricted Stock Unit Award Agreement.
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How do lenders calculate RSU income?
Because stock prices can change drastically over a short period of time, lenders usually look at a 52-week average stock price to calculate the value of your RSUs. They will also use the information you provide so be sure to give as much documentation on the terms and conditions of your RSU agreement as possible.
What is bonus income?
Bonus income is any money you receive from your employer as a bonus to your regular salary. It’s important to note that if more than 25% of your income is described as coming from bonuses or commission, you are technically considered self-employed and your application will be written as such.
When can I use bonus income in loan applications?
Similar to RSUs, you will need to provide pay stubs, W2 forms, tax returns, and any other documentation that proves a regular history of bonuses over the last 2 years or more. Lenders also want assurance that your bonuses will continue. This is typically described in a written Verification of Employment from the company.
How do lenders calculate bonus income?
This is a much simpler calculation than for RSUs. Lenders will usually divide the total amount of bonus income you received in the last 2 years by the total number of months (24) to calculate an average monthly income. Like with RSUs, that number is then added to your regular monthly income.
But most importantly, remember that there is no universal method for calculating and accounting for RSUs and bonus income. Restrictions will vary by lender so it is crucial that you shop around and compare offers before signing a contract.