RSU Income & Mortgage Qualification

Working for a tech company that uses Restricted Stock Units (RSUs) as compensation can limit your ability to qualify for the home mortgage you might desire. Luckily, more mortgage providers now accept income from RSUs in their qualification calculations, but it may take some advanced planning on your part.

More about Equity Compensation at Tech Companies.

Here’s what you need to know about RSUs and mortgage qualification:

What is RSU Income:

• The income received from RSUs when they vest.
• The value of an RSU becomes taxable income at vesting, regardless of whether or not you cash them out.
• Mortgage providers may require shares to be converted to cash (sold) to be considered RSU income for mortgage qualification purposes.

Qualifying for a Mortgage Using RSU Income:

• Must have documented RSU income during the past two years on your tax return (e.g., during 2021 and 2022 if applying for a mortgage in 2023).
• The underwriter will want to see your RSU vesting schedule for the next two to three years.
• In valuing future RSU income, the mortgage provider will likely discount the current stock price or use a historical average.
• Alternatively, lenders may calculate qualifying income from your average RSU income over the prior two years.
• Typically, only 35% of your qualifying income can be from RSUs.

Mortgage Qualifying Income:

• The income sources that a mortgage lender considers when calculating the loan size you qualify for.
• Salary is often the largest income source, but lenders can also include RSU income, investment income, self-employment/business income, bonuses, and other sources when adding up your total qualifying income.

Implications:

• You need to have been employed at the firm for more than two years and may need to have been converting vested RSUs to cash.
• Given recent stock market performance, the historical average price used to calculate future RSU income may be significantly below the current value.
• If you have a back-weighted RSU vesting schedule, after two years of employment, your historical income from RSUs may be below your expected future RSU income.
• Depending on your future vesting schedule, you may not have RSUs vesting out three years in the future.
• The amount of qualifying income accepted from RSUs will likely be well below what you expect to earn from vesting RSUs in future years.

What to Do:

• Plan ahead to build and implement a financial plan that best positions you to achieve your home buying goals.
• Gain a clear understanding of your compensation plan, employer’s compensation practices, and what your income is likely to be over the next three years.
• Gather the necessary documentation:
  • W-2, bank statements, etc. (required for all mortgage applications).
  • Tax returns for prior two years.
  • RSU award agreement(s).
  • Current balance of vested and unvested RSUs.
• Find a mortgage lender who is willing to consider RSU income for mortgage qualification.
• Get a pre-qualification letter from your lender.
• Find your dream home and submit an offer…best of luck!

• Union Bank
• US Bank
• Wells Fargo
• Sound Community Bank
• Better.com