How Jumbo Lenders View Restricted Stock Units (RSUs) as Income
For high-income earners in California's tech and corporate sectors, Restricted Stock Units (RSUs) often form a significant part of total compensation. However, jumbo mortgage underwriters don't view this as simple salary. They need to see a stable, reliable history before they will count it as qualifying income.
Lenders are primarily concerned with consistency. To use RSU income, you will almost always need to provide documentation showing a two-year history of RSUs vesting and being received. (The data, information, or policy mentioned here may vary over time.) An offer letter showing future vesting schedules is helpful context but is not a substitute for a track record.
Calculation and Documentation
An underwriter will analyze your RSU history to calculate a dependable average monthly income. They will review:
- Vesting Schedules: A detailed schedule from your employer showing past and future vesting dates and amounts.
- Brokerage Statements: Proof that the shares were deposited into your account upon vesting.
- Pay Stubs: Pay stubs that itemize the RSU income, showing it as a taxable event.
- W-2s: Two years of W-2s that reflect the RSU income.
Example: Suppose in 2022, you vested $150,000 worth of stock. In 2023, you vested $170,000. A lender might average these two years to get $160,000 annually. This translates to $13,333 in monthly qualifying income. If there was a significant decline in value from one year to the next, the lender will likely use the lower figure or a more conservative average. (The data, information, or policy mentioned here may vary over time.)
Documenting Consistent Bonus Income
Similar to RSUs, bonus income is considered variable and requires a history of consistent payment to be used for qualification. A one-time signing bonus will not be counted. Lenders need to be confident that the bonus is a regular and predictable part of your compensation.
To satisfy a jumbo underwriter, you typically need to show a two-year history of receiving the bonus. (The data, information, or policy mentioned here may vary over time.) The lender will then average the amounts received over the past 24 months to calculate a qualifying monthly income figure.
What Underwriters Look For
- Stability: Is the bonus amount stable or increasing? A significant decrease from one year to the next is a red flag and may result in the lender using only the lower year's amount or excluding the income altogether.
- Employer Verification: The lender will send a Verification of Employment (VOE) form to your employer. This form asks HR to confirm your salary, bonus structure, and the likelihood of its continuance. A positive response is critical.
Example: You earned a $75,000 bonus in 2022 and a $95,000 bonus in 2023. The lender will average these to get an annual bonus income of $85,000, or $7,083 per month. If your 2023 bonus had dropped to $40,000, the lender would likely only use the $40,000 figure, resulting in just $3,333 per month in qualifying income. (The data, information, or policy mentioned here may vary over time.)
Why Your K-1 Business Income Wasn't Fully Counted
For business owners, partners, and those with S-Corp distributions, K-1 income is a common source of confusion during the mortgage process. You may see a large number on your K-1, but the lender only counts a fraction of it. This is because underwriters must analyze the health and stability of the underlying business, not just the income distributed to you.
Lenders perform a detailed cash-flow analysis of the business using two years of business tax returns. They make specific adjustments, adding back non-cash expenses like depreciation and depletion, but subtracting any income that wasn't actually distributed or is needed for business operations.
Common Deductions from K-1 Income
- Undistributed Earnings: If the business earned $500,000 but only distributed $300,000 to partners, keeping $200,000 as retained earnings, the lender will focus on the $300,000 you actually received.
- Business Stability: If the business shows declining revenue or profits, the underwriter will be more conservative with the income they allow.
- One-Time Events: Any income derived from a one-time sale of a business asset is typically excluded.
Example: Your K-1 shows $250,000 in income for the year. However, the business tax returns show the company's net income declined by 15% and that you only took distributions of $180,000. The underwriter will likely use the lower, distributed amount of $180,000 as your annual qualifying income. (The data, information, or policy mentioned here may vary over time.)
Reserve Requirements for a California Jumbo Loan
Reserves, also known as post-closing liquidity, are a critical component of any jumbo loan application. These are the liquid assets you will have remaining after you've paid your down payment and all closing costs. Lenders require these reserves as a safety net to ensure you can continue making mortgage payments if your income is interrupted.
For a jumbo loan in California, the standard requirement is 6 to 12 months of PITI (Principal, Interest, Taxes, and Insurance). For larger loan amounts (over $3 million) or more complex income profiles, lenders may require 18, 24, or even 36 months of reserves. (The data, information, or policy mentioned here may vary over time.)
What Qualifies as an Asset for Reserves?
- Checking and Savings Accounts: 100% of the value.
- Stocks, Bonds, and Mutual Funds: Typically counted at 70% of their value to account for market volatility.
- Vested Retirement Accounts (401k, IRA): Often counted at 60% of the vested balance. You do not need to withdraw the funds; you just need to prove you have access to them.
(The data, information, or policy mentioned here may vary over time.)
Example: Your new monthly mortgage payment (PITI) is calculated to be $18,000. If the lender requires 12 months of reserves, you must have $216,000 in qualified liquid assets remaining after closing.
Structuring Assets to Improve Your Jumbo Loan Application
How you manage and present your assets in the months leading up to your loan application can significantly impact its success. Underwriters look for stability and clear sourcing of all funds. Proactive asset management can prevent last-minute problems.
Best Practices:
- Consolidate Funds Early: If your down payment and reserve funds are spread across multiple accounts, consolidate them into one or two accounts at least 60-90 days before applying. This avoids the need to paper-trail every transfer.
- Reduce Consumer Debt: Pay off or significantly pay down car loans, credit card balances, and personal loans before applying. This lowers your debt-to-income (DTI) ratio, which is a key factor in jumbo loan approval. Freeing up $1,000 in monthly debt payments can increase your home purchasing power by over $150,000.
- Document Gift Funds Properly: If you are receiving a gift for part of your down payment, source it correctly. You will need a signed gift letter from the donor stating the amount and that no repayment is expected, along with bank statements showing the gift funds leaving their account and entering yours.
Finding Lenders Who Specialize in Self-Employed Borrowers
Not all lenders are equipped to handle complex income scenarios. Large national banks often rely on automated underwriting systems that struggle with variable income, K-1s, and nuanced business structures. These systems look for simple W-2 income and can automatically reject applications that don't fit a standard mold.
Borrowers with complex income should seek out lenders with experience in manual underwriting. These include:
- Portfolio Lenders: These lenders (often smaller banks or credit unions) keep their loans 'in-house' rather than selling them to Fannie Mae or Freddie Mac. This gives them more flexibility to set their own underwriting guidelines.
- Mortgage Brokers: An experienced mortgage broker has access to a wide network of dozens of wholesale lenders, including portfolio lenders and those who specialize in niche products. They can analyze your specific financial situation and match you with the lender most likely to approve your loan.
Is an Asset-Based Loan a Better Option?
For high-net-worth individuals with substantial liquid assets but income that is difficult to document traditionally (e.g., retired individuals, trust fund beneficiaries, or entrepreneurs in a pre-revenue phase), an asset-based loan can be an excellent alternative.
This type of loan, also known as an asset depletion or asset utilization loan, allows you to qualify for a mortgage based on your assets rather than your income. The lender uses a formula to convert a portion of your assets into a hypothetical monthly income stream.
Example: A borrower has a $4 million brokerage account. A lender might use a 240-month depletion period. The calculation would be:
$4,000,000 / 240 months = $16,667 in monthly qualifying income.
This 'income' can then be used to qualify for the loan. While interest rates may be slightly higher than a traditional jumbo loan, it provides a powerful financing solution when income documentation is the primary obstacle. (The data, information, or policy mentioned here may vary over time.)
Explaining Large, Irregular Deposits to an Underwriter
Underwriters are required by federal law to scrutinize your bank statements for the past 60 days. Any large deposit that is not from a payroll check must be sourced and explained. This is to prevent mortgage fraud and ensure the funds used for closing are legitimate.
Be prepared to provide a paper trail for any non-payroll deposit. This is non-negotiable.
Acceptable Sources and Documentation:
- Sale of an Asset: Provide the bill of sale for a car, boat, or other valuable item.
- Tax Refund: A copy of the refund check or direct deposit statement from the IRS.
- Gift Funds: A signed gift letter and proof of the wire transfer or cashed check.
- Insurance Payout: Documentation from the insurance company detailing the settlement.
- Stock Sale: Brokerage statements showing the sale of securities and the transfer of proceeds to your bank account.
Failing to properly document a large deposit can delay your closing or even lead to a denial. It is always best to be transparent and provide all requested documentation promptly. Navigating a California jumbo loan with complex income requires a clear strategy. If you're unsure how your RSU, bonus, or business income will be viewed, a consultation with a mortgage expert can provide clarity and connect you with the right lender for your unique financial profile.
Ready to see how your complex income profile translates into real numbers for a jumbo loan? Start your confidential application to get clarity from a mortgage expert.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.
References
Fannie Mae - B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower
