Qualifying for a mortgage with RSU income

When you first start working at a startup or publicly traded company and look at your compensation package, you might be thrilled to see that you get company stock in addition to your salary for the first few years. 

Restricted stock units, aka RSUs, can make your income seem a lot higher than your annual salary. But what happens when you want to buy a house? Does RSU count as your income for a mortgage? At the risk of sounding evasive, the answer is: It depends. 

Before you start picking out curtains and the perfect tile backsplash for your dream home, take a minute to find out exactly how much of your RSU income can be used towards your mortgage qualification.  

RSU income 101

Before I jump into how to use RSU income for your mortgage, here’s a quick refresher on what restricted stock units are and how they impact your overall income.

When you signed on with your company, you may have received an RSU grant as part of your compensation package. But you don’t automatically get all of that company stock right away (hence the term “restricted”). 

First, you need to complete one or more vesting periods. That’s a set length of time you must stay with the company in order to earn ownership of those stocks. 

The idea is to make sure you actually stick around for at least a few years instead of being lured away to a competitor. Apple, for instance, gave some employees a $180,000 stock bonus at the end of 2021 if they agreed to stay with the company for at least four years, instead of jumping ship to places like Meta or Google.

Oftentimes, your RSU package may be divided up into multiple vesting periods. Your company might spread out disbursement over several years; maybe you’ll get 200 shares each year for five years. In total, you’d receive 1,000 shares in this scenario. Also note that once your stocks vest, they’re taxed at both the federal and state level.

When to use RSUs for your mortgage application

You may know that your credit score impacts the interest rate you’re eligible for with a mortgage. But your income and your debt are the biggest factors affecting how much you can actually borrow.

Lenders view this through a simple equation called your debt-to-income ratio, or DTI. To figure out your own DTI, add up all of your pre-tax monthly income and debt payments (like credit card minimums, student loan payments, and car payments). Also include your estimated mortgage payment (including homeowners insurance, property taxes, and any anticipated HOA fees). 

Your total debts divided by your income equals your DTI (multiply by 100 to get a percentage). Generally, you want your DTI to be under 43%.

So if your monthly income before taxes is $15,000 and your total debt payments (including a new mortgage) are $6,000, then your DTI would be 40%.

What does this middle school math lesson mean for you?

The higher your income, the more you can spend on a house. That’s why RSU income can be a huge help when you’re applying for a mortgage. It gives you more wiggle room in your debt-to-income ratio so I can help get you qualified for as much as possible.  

How to use RSU income for a mortgage

Since you may not own all of the stock included in your RSUs, you typically can’t use all of it as income in order to qualify for a mortgage. Plus, stock values are constantly fluctuating — something as simple as a change in leadership at your company could cause the stock to either plummet or skyrocket. And let’s face it, if you work at Tesla, your stock value is largely at the mercy of Elon Musk’s Twitter account.

With all this in mind, here’s how a mortgage lender usually looks at RSU when determining how much of a mortgage you qualify for.

Publicly traded company. When it comes to using RSU income, those stocks have to be from a publicly traded company. While I totally get that you believe your startup founder is going to be the next Steve Jobs or Mark Zuckerberg, I need those stocks to be worth something today (#SorryNotSorry).

35% limit on RSU income. No matter how much RSU income you negotiated during the hiring process, it can only account for 35% of your total qualifying income for a mortgage. So if you have $250,000 in vested RSUs but your salary is $200,000, you can’t count it all for your mortgage application. You could count roughly $106,000 of your RSUs on top of your salary for a total qualifying income of around $306,000. 

What extra documentation you need

Before getting a lender mortgage statement with RSU income, you do need to send in some extra paperwork as part of your application. Here’s what you’ll need:

• Restricted stock agreement and vesting schedule: This outlines when the vesting schedule began, at what intervals you’re vested, and for how much. If you can’t find a copy, check with your company’s HR department.
• Written verification from your employer: This provides extra validation that you’re currently on a vesting schedule. Usually I like to see this for the next three years. I’ll help you get what you need from your company.

I’ll also take a look at your pay stubs and tax returns that are part of the standard mortgage application. 

Get that mortgage with your RSUs

When you’re applying for a mortgage with RSU income, it’s crucial to work with a lender who not only gets what that means, but also wants to work with people like you. My team and I regularly work with borrowers who work in industries that give employees RSUs. 

I don’t view RSU income as a liability or a headache. I take it as an effective way to leverage all of your assets to get you into the best house possible. 

Skip the lender who responds to your RSU inquiry with an eye roll or a groan. Instead, choose Aragon Lending. We’re ready to kick butt and take names to get you approved for a mortgage while proudly waving that RSU statement in hand.

What about my Bitcoin Bros looking to get pre-approved for a home loan?

Depending on how your BTC is setup, the answer can actually be yes: qualifying for a mortgage with bitcoin is possible. However it does come with a special set of requirements. If interested in applying for a mortgage with cryptocurrency or for using crypto as a down payment, it’s best to get in touch, so we can get a better idea of your situation.