Got Bonus?

The Seattle Times announced yesterday that Boeing employees will be receiving a record $600 million in bonuses starting next week. From the Seattle Times:

“Boeing’s nearly 66,000 current employees in the state will be eligible for the bonuses. More than 6,000 more who worked at least part of last year before leaving the company will get a partial bonus, prorated according to how long they worked last year.”

Boeing employees are not alone. Many large companies are doling out bonuses to their employees. From a recent article in USA Today:

“…at least 39 companies in the Standard & Poor’s 500 index — comprising 500 of the nation’s largest companies — have said they are providing additional financial rewards to workers, citing benefits from the new tax law…”  

Some companies like Alaska Airlines, AT&T, Home Depot and Walt Disney are offering a fixed bonus amount. Others companies, such as Starbucks, Apple and Verizon, are offering bonuses in the form of shares of company stock.

Well if you’re one of the many lucky ones with some extra funds coming your way, I thought I’d share how you can use the various types of bonuses for qualifying for a mortgage…just in case you’re considering buying or refinancing a home.

Bonus used for income.  Unless your bonus is an adjustment to your base salary, like the 7.2% annual increase many Boeing engineers just received, it will be averaged separately from your other income. Typically, lenders like to see a two year history of bonus income before allowing to use it for income when it comes to qualifying for a mortgage. If your bonus income is not received every year, not likely to continue or if it’s your first time receiving a bonus, you may not be able to use it (or all of it) for when it comes to qualifying income on a mortgage preapproval.

For example, let’s say you’re a Machinist at Boeing with an annual income of around $60,000 who last year received a bonus of $1560 and this year, received a bonus of $3300. For qualifying, lenders would average the bonus income to $2040. ($1560 + $3300/2). By the way, overtime income is essentially treated the same as bonus income – it is also average over the last two years.

What if this is your first time receiving a bonus or your bonus income is not regular? No worries! You can always use that bonus income to go towards your down payment or closing cost. If you’ve been considering refinancing or buying a home, and toying with using the bonus to pay off debt or a collection, please contact your mortgage professional first. It’s possible that you might be better off having the bonus in savings or that paying off a collection or debt could actually have a negative impact to your credit score.

Bonus in the form of company stock. Stay tuned for part 2 of this post where I address bonus income in the form of stocks. You can subscribe in the upper right corner of this blog or check back often. 🙂

Congrats to those who received bonuses! If you are considering buying or refinancing a home anywhere in Washington state, even if it’s a year or two away, I am happy to help you! Click here to start the preapproval process or here for a no-hassle mortgage rate quote.

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