The largest hurdle for borrowers looking to qualify for a mortgage is to prove they have enough income to qualify – especially for those who are employed by a startup or work in technology or life sciences. Oftentimes, salaries in these industries (along with others) are supplemented with Restricted Stock Units (also known as RSUs). This can create a disparity in the borrower’s ability to qualify for a mortgage.
Smaller employers have been shifting away from the traditional pay structures such as full-time salary work. Large bonuses, commissions, and overall variable pay is on the rise, as performance-based incentives are more commonplace. Compensating individuals through restricted stock options has become more mainstream as well.
Restricted stock is a form of compensation where employees receive shares of the company stock known as Restricted Stock Units (also known as RSUs). Typically these are paid out over the course of months or years and are categorized as either time-based or performance-based options.
Determining the exact amount of qualifying income that can be derived from RSU for loan qualifying purposes can be tricky, especially as the stock price of a company can fluctuate.
Some standard documents are required in order to use this income to qualify. These include an RSU Agreement and/or offer letter that outlines the vesting provisions (terms), a current vesting schedule that details both past and future vesting, and some form of evidence of receipt confirming the shares have been paid out.
Shares must have been vested over the course of either one or two years and be expected to continue into the future. RSU’s can not be distributed in the form of cryptocurrency and the stock must be on a publicly traded market exchange. Additionally, the restricted stock units must have been vested and distributed without restriction by the current employer.
Assuming all of the documentation and restrictions are met, RSU income can be used for qualifying income. We are happy to evaluate your specific scenario if you have RSU income and have questions. Please give us a call at 760-930-0569 to speak with one of our Mortgage Loan Originators.
