Overtime and bonuses count toward your mortgage income on FHA, Conventional, VA and USDA loans, and for hourly workers in Florida they often decide whether the house has two bedrooms or three. The lender looks at how long you've received the extra pay and whether it's holding steady, so last week's double shift won't move the number. Instead, it averages what you earned over a year or two and adds that monthly figure to your gross monthly income, which is your pay before taxes and deductions.
How much history each program wants
| Program | Standard history | Shorter history |
|---|---|---|
| FHA | 2 years | At least 1 year, if earned consistently and likely to continue |
| Conventional (Fannie Mae) | 2 years recommended | No less than 12 months, with positive factors that offset the shorter history |
| VA | 2 years as a general rule | 12 months of verified overtime can offset debts with 6 to 24 months left |
| USDA | 1 year in the same or similar line of work | None needed beyond the year |
The extra pay has to be likely to continue. Lenders confirm that with your employer, usually on a written verification of employment that lists base pay, overtime and bonuses separately for this year and the last two.
How the lender averages it
FHA uses the lesser of two numbers: your average overtime or bonuses over the previous two years, or your average over the previous year. If you've earned it for less than two years, the first number is the average over the time you've actually earned it.
Conventional loans average your year-to-date earnings with the previous year's, and the calculation has to cover at least 12 months. Bonuses paid once a year are divided by 12. When the income dropped, the lender has to confirm it has leveled off and then uses only the earnings since it stabilized.
VA generally counts overtime once it has continued for two years. With 12 months of verified overtime, VA can still use it to offset debts that have 6 to 24 months left, such as a car loan close to payoff.
USDA wants one year in the same or a similar line of work, and the underwriter takes a closer look at any swing of 20% or more up or down.
A worked example
Marcus is a warehouse lead in Florida earning $18.50 an hour for 40 hours a week. That's $18.50 × 40 × 52 = $38,480 a year, or $3,206.67 a month. He earned $6,900 in overtime two years ago and $8,100 last year, and his employer paid him $2,400 in bonuses each of those years. His car payment and credit card minimums come to $350 a month.
- Two-year overtime average: $15,000 ÷ 24 = $625.00 a month
- Last year's overtime average: $8,100 ÷ 12 = $675.00 a month
- FHA uses the lower figure: $625.00
- Bonuses: $4,800 ÷ 24 = $200.00 a month
His qualifying income becomes $3,206.67 + $625.00 + $200.00 = $4,031.67. Here's what that does on an FHA loan at a 5.75% rate, with property tax of 0.95% a year and homeowners insurance of $283 a month:
| Base pay only | Base pay, overtime and bonuses | |
|---|---|---|
| Qualifying income | $3,206.67 | $4,031.67 |
| Highest FHA price | $171,000 | $230,000 |
| House payment | $1,473.84 | $1,884.72 |
| Housing ratio | 46.0% | 46.7% |
| Total debt ratio | 56.9% | 55.4% |
The overtime and bonuses add $59,000 to what Marcus can buy. FHA allows the house payment up to 46.9% of gross income and total debts up to 56.9% with an automated approval, and both columns land inside those limits.
Now flip his overtime: $8,100 two years ago and $6,900 last year. The two-year average is still $625.00, but last year's average is $575.00, so FHA uses $575.00. His highest price slips to $227,000, a $3,000 difference.
If your overtime is new or uneven
- Count the months. FHA and Conventional can use overtime after 12 consistent months. If you're at 10 months, waiting two more can add tens of thousands to your price.
- Buy on base pay now. Your base pay counts right away. FHA 100% financing, which covers the 3.5% down payment with a down payment assistance second, keeps the cash side small while income catches up.
- Add a co-signer. A parent's or grandparent's income is added to yours on FHA and Conventional loans, and they don't go on the title.
- Pay off a small debt. When the total debt ratio is the limit, every $100 a month you remove adds roughly $14,000 of FHA price at a 5.75% rate.
Enter your base pay plus your averaged overtime and bonuses in the QualRate calculator to see the price it supports on all four programs. If your overtime history is close to the line, call AAA Capital Funding at 888-601-8344 and we'll work out exactly which months count and when.