Using Bonus, Overtime, and Commission Income to Qualify for a Mortgage in Washington State

If your paycheck includes more than just a base salary — a year-end bonus, regular overtime, or commission — you may have more mortgage qualifying power than you realize. Variable income is usable for mortgage qualifying, but the rules around how lenders calculate it trip up a lot of buyers at the preapproval stage.

Here’s what Washington State buyers need to know about using bonus, overtime, and commission income when applying for a mortgage.

The Core Principle: Documented, Consistent, and Likely to Continue

Lenders can use variable income for mortgage qualifying as long as it meets three basic criteria:

• Documented — verified through tax returns, W2s, and pay stubs
• Consistent — received regularly over a sufficient history, typically two years
• Likely to continue — ideally the income source will continue to be received and is not declining.

When variable income meets all three criteria, lenders can average it and add it to your base salary for qualifying purposes — which can significantly increase the loan amount you qualify for. When it doesn’t meet these criteria, it may still be usable for qualifying income or as funds for down payment and closing costs.

Lenders are looking for trends with income. If part of your income is salary, generally your current salary is used and any other type of compensation is averaged separately. How the variable income is averaged will depend on various factors and the guidelines below are not necessarily set in stone. Other specialty mortgage programs with flexible income guidelines may be available for different scenarios.

Bonus Income

Bonuses are one of the most common forms of variable compensation in Washington State — and one of the most frequently misunderstood in the mortgage process.

How lenders calculate bonus income

Lenders typically require a two-year history of receiving bonus income before it can be used for qualifying. If you have received bonuses for two or more years, the lender will average the income over that period.

For example: if you received a $10,000 bonus last year and a $15,000 bonus this year, the lender would use $12,500 per year ($25,000 ÷ 2) as your qualifying bonus income — or approximately $1,042 per month added to your base salary. Depending on your debt-to-income ratio, that additional monthly income can meaningfully increase your purchasing power.

What if this is your first bonus?

If you’re receiving a bonus for the first time, or your bonus is irregular and unlikely to continue, it generally cannot be used as qualifying income. However it can absolutely be used as funds for your down payment or closing costs — which is still very valuable, particularly for buyers trying to reach a specific down payment threshold.

Declining bonus income

If your bonus income has declined year over year, lenders may use only the most recent year’s amount rather than the two-year average — or may decline to use it at all if the trend suggests it’s not stable. A declining bonus pattern raises questions about continuance that underwriters will want addressed.

Overtime Income

Overtime is treated essentially the same as bonus income — it generally requires a two-year history and is averaged over that period. This is particularly relevant for hourly workers in manufacturing, healthcare, construction, and skilled trades throughout Washington State.

One important nuance: if your employer requires mandatory overtime as part of the job — meaning it’s built into the role rather than optional — some lenders may be more flexible about the history requirement. If overtime is a consistent and significant part of your compensation, it’s worth discussing with your loan officer upfront rather than discovering it’s excluded at underwriting.

Overtime that is clearly declining or that your employer has indicated may be reduced is less likely to be usable — lenders look at the full picture, not just the most recent pay stub.

Commission Income

Commission income also typically requires a two-year history and is averaged. The calculation differs depending on how your commission is structured:

• Base salary plus commission: lenders average the commission component separately and add it to your base
• 100% commission, no base: lenders typically use your net commission income from your tax returns — after business expenses — rather than gross commissions

Commissioned income tends to be treated the same as income from a self-employed person as it is variable and not guaranteed.

Using Variable Income Strategically

Down payment vs. qualifying income

Sometimes using a bonus or commission payment as a larger down payment produces better results than trying to use it as qualifying income. A larger down payment reduces your loan amount, eliminates or reduces mortgage insurance, and may improve your interest rate through better loan-to-value pricing. Running both scenarios side by side before applying is always worth doing.

Timing your application

If you’re close to receiving a significant bonus or commission payment that would help your qualifying position, timing your application to capture that income can make a meaningful difference. Your loan officer can help you determine whether waiting a few weeks or months is worth it based on your specific numbers.

Don’t pay off debt without asking first

A common instinct is to use a bonus to pay off a credit card or auto loan before applying for a mortgage. This can be the right move — but it’s not always. Paying off certain debts can temporarily lower your credit score, and your lender may get a better result seeing the funds in savings rather than applied to debt. Always check with your loan officer before making any significant financial moves in preparation for a mortgage application.

What Documentation Will You Need?

For bonus, overtime, and commission income, lenders typically require:

• Most recent two years of W2s
• Most recent two years of federal tax returns (required for commission-based and self-employed borrowers)
• Most recent pay stubs covering 30 days of income, showing year-to-date bonus, overtime, or commission earnings
• Lenders will obtain a verification of employment (VOE) confirming the income type is expected to continue. The VOE is sometimes automated or provided by the employer.