Bonus Income Included?

[dustinc]

To qualify for the loan amount I need, my bonus income needs to be included. Am I going to be able to find a lender that will include it? It's about 15% of my income. I have a stable work history, but will have only been at this job for 1.5 years when I apply for the loan.

[justbroke]

Bonuses are generally not included unless your company "guarantees" them. At least, that has been my experience in the past. This is actually a good thing for you. Let's say that they grant you a loan based on a $10K annual bonus, but it never materializes? I do not get my bonus every year and, although it's much smaller than it used to be, I enjoyed getting one this year!

So, if it's a guaranteed bonus... yes, you can include it. If it's not guaranteed, many underwriters will not let you include it as income.

[jribe]

Is it an FHA loan? They will typically include them if you can prove the bonuses for the last 2 years.

Here's the info from the FHA handbook:

b. Overtime and Bonus Income

Overtime and bonus income can be used to qualify the borrower if he/she has received this income for the past two years, and it will likely continue. If the employment verification states that the overtime and bonus income is unlikely to continue, it may not be used in qualifying.

The lender must develop an average of bonus or overtime income for the past two years. Periods of overtime and bonus income less than two years may be acceptable, provided the lender can justify and document in writing the reason for using the income for qualifying purposes.

Reference: For more information on earning trends for overtime and bonus income, see HUD 4155.1 4.D.2.c.

[justbroke]

Exactly, but you must also prove the likelihood of it continuing. When I asked my employer to confirm it, they would only say that it is not guaranteed and may not be paid.

Remember, for FHA the employer must verify that the bonus will continue. So hopefully your employer will list your bonus as part of your income and have a notation that it is likely to continue. If there's a good pattern for years (more then 3 I would say), then without a direct statement on your income verification letter saying that it's unlikely to occur, the underwriter may accept that as the likelihood that it would.

[dustinc]

Exactly, but you must also prove the likelihood of it continuing. When I asked my employer to confirm it, they would only say that it is not guaranteed and may not be paid.

Remember, for FHA the employer must verify that the bonus will continue. So hopefully your employer will list your bonus as part of your income and have a notation that it is likely to continue. If there's a good pattern for years (more then 3 I would say), then without a direct statement on your income verification letter saying that it's unlikely to occur, the underwriter may accept that as the likelihood that it would.

What if my employer will say that I am certain to receive a certain %. Like say it could range from 5% to 10% of my income. Would they give me the 5%?

[justbroke]

What if my employer will say that I am certain to receive a certain %. Like say it could range from 5% to 10% of my income. Would they give me the 5%?

They may average it based on proof, in the past, that you actually received 5-10% bonus. The keyword is that they do not mention that it's "not guaranteed" or "not likely" to be paid in the future! That is what my employer put on my employment verification with some wording indicating that it should not be "counted upon"!

[JKPDX]

Your loan officer will get a "verification of employment" from your current employer. This will show 2009, 2010, and year to date 2011 earnings broken out by wages, OT, bonus, commission, etc. The rule is you have to have been receiving bonus income (consistent) for the past two years. Also, there is a box on the form that asks if the OT/bonus income is "likely to continue." That is where many borrowers run into a snag. I've had employers refuse to check the box because they are afraid of being on the hook later on down the road if the bonus doesn't materialize....

[justbroke]

Also, there is a box on the form that asks if the OT/bonus income is "likely to continue." That is where many borrowers run into a snag. I've had employers refuse to check the box because they are afraid of being on the hook later on down the road if the bonus doesn't materialize....

That is exactly the problem. My employer refuses to, in any form, "guarantee" a bonus because they may be legally obligated to pay it regardless of the situation.