Most people type their base pay into a calculator and leave the overtime out. A lender works from your pay stubs and W-2s, and steady overtime, bonuses, commission and tips all go on the application.
How a lender counts it
The lender looks at two things: how long you've had the extra pay, and which way it's moving.
- Steady or rising. The lender adds this year's year-to-date amount to last year's total and divides by the months covered. Some lenders include the year before that too.
- Running lower this year. The lender uses this year's monthly pace, the lower number. When the drop is 20% or more, FHA counts the current year only and the lender asks why it dropped.
- Under 12 months. It usually waits until it has a 12-month history. Your base pay still counts in full.
Two examples with real numbers
| Steady overtime | Overtime that dropped | |
|---|---|---|
| So far this year | $6,000 in 6 months ($1,000 a month) | $4,800 in 6 months ($800 a month) |
| Last year | $10,800 ($900 a month) | $14,400 ($1,200 a month) |
| What happens | Averaged: $16,800 over 18 months | This year is 33% lower, so this year's pace is used |
| Counted each month | about $933 | $800 |
| About this much more house | about $64,000 | about $55,000 |
The "more house" figure uses FHA with 3.5% down at a 5.75% rate, with 46.9% of the added income going to the house payment. Your own number depends on your debts, your county and the program.
How long you need it
| Program | Standard | Shorter history |
|---|---|---|
| Conventional (Fannie Mae) | 2 years recommended | At least 12 months, when other parts of the application are strong |
| FHA | 2 years | 1 to 2 years, when the lender documents why it should continue |
What to have ready
- Your latest pay stub, with the year-to-date column
- Your last pay stub from last year, which shows last year's overtime or bonus total
- Your W-2s from the last two years
- For tips you reported yourself, your last two tax returns with Form 4137
Where this number goes
Add the monthly figure to your regular pay before taxes when the approval calculator asks for your monthly income. If a lender or a calculator left your overtime out, call AAA Capital Funding at 888-601-8344 and we'll count it with you from your stubs.