Understanding RSU Income: Navigating the Mortgage Maze
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Imagine being a successful tech worker, earning a substantial income through a mix of base salary and restricted stock units. You're ready to buy your dream home, but when you approach lenders, they give you wildly different estimates of what you can afford. This perplexing scenario is a reality for many professionals who receive a significant portion of their income in RSUs. The treatment of RSU income by different lenders can feel like a puzzle, leaving you wondering how to accurately present your financial picture.
The RSU Conundrum
For tech workers in particular, restricted stock units (RSUs) are a common form of compensation. However, these income sources are often treated inconsistently by lenders. As Matt Gouger, a mortgage broker known as Matt the Mortgage Guy, explains, RSU income doesn't fit the neat pattern of traditional W-2 income. The value of RSUs can fluctuate with the stock market, adding a layer of complexity to the mortgage application process.
What Lenders Consider
When evaluating RSU income, lenders typically consider three main factors: history, continuance, and stock price stability. They often want to see at least a two-year history of RSU income to count it as qualifying income. This is because history provides a glimpse into future earnings potential. Continuance is another key element, where lenders seek assurance that the RSU income will persist, typically requiring a vesting schedule that spans several years.
Lenders may give RSU stock prices a haircut, or take a percentage of the value, to account for potential volatility.
Document everything: Include agreements, W-2s, tax returns, pay stubs, and vesting schedules.
Avoid changing jobs before applying for a mortgage to maintain a consistent income history.
Refrain from selling vested RSUs close to your mortgage application to avoid complicating the source of funds.
Finding the Right Lender
Given the variability in lender policies, working with a knowledgeable mortgage broker can be invaluable. A broker familiar with RSU income and tech compensation structures can shop around to find a lender that views your financial situation favorably. Some lenders may apply conservative estimates, while others might be more flexible with RSU income.
Ultimately, understanding how RSU income is assessed and preparing your application with comprehensive documentation can help you navigate the mortgage process more effectively. By partnering with the right professionals, you can ensure that your unique compensation structure is accurately represented and that you are able to make your homeownership dreams a reality.
