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 greater Seattle and 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.

RSUs or restricted stocks

If your compensation includes RSUs or restricted stock, see the companion guide: Using RSUs and Restricted Stock to Qualify for a Mortgage in Washington State

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.

Frequently Asked Questions

Can bonus income be used to qualify for a mortgage in Washington State?

Yes. Bonus income can be used to qualify for a mortgage if it’s documented, consistent, and likely to continue. Lenders typically require a two-year history of receiving bonus income and will average the income over that period. A first-time or irregular bonus generally can’t be used as qualifying income, but can be used for down payment or closing costs.

How do lenders calculate bonus income for a mortgage?

Lenders average bonus income over a two-year history and add it to your base salary for qualifying purposes. For example, if you received a $10,000 bonus one year and a $15,000 bonus the next, the lender would use $12,500 per year as your qualifying bonus income. Declining bonus income may result in only the most recent year being used.

Can overtime income be used to qualify for a mortgage?

Yes. Overtime income is treated similarly to bonus income — it generally requires a two-year history and is averaged over that period. If your employer requires mandatory overtime as part of the job role, lenders may treat it more like regular income. This is particularly relevant for hourly workers in healthcare, manufacturing, construction, and skilled trades in Washington State.

How do lenders calculate commission income for a mortgage?

Commission income typically requires a two-year history and is averaged over that period using tax returns and W-2s. If commission makes up 25% or more of your total income, lenders will look closely at your tax returns, including any unreimbursed business expenses, which can reduce your qualifying income. A declining commission trend raises continuance questions that underwriters will want addressed.

What if I just started a job with bonus or commission income?

If you’re new to a role and haven’t yet received a full year of bonus or commission income, it generally can’t be used as qualifying income. However, it can be used as funds for down payment or closing costs. In some cases, an offer letter documenting guaranteed compensation may help, and specialty loan programs with more flexible income guidelines may be available.

Does declining variable income hurt my mortgage application?

Yes. Declining bonus, overtime, or commission income is a red flag for underwriters because it raises questions about whether the income will continue. Lenders may use only the most recent year’s amount rather than the two-year average, or may decline to use the income at all if the trend suggests instability.

Can RSU or restricted stock income also be used for mortgage qualifying?

Yes. RSU and restricted stock income can be used for mortgage qualifying under both Fannie Mae and Freddie Mac guidelines, subject to documentation and history requirements. Freddie Mac recently updated its guidelines to allow as little as 12 months of RSU history in some cases.

See the companion guide on using RSU and restricted stock income to qualify for a mortgage in Washington State for full details.

What documents are needed to use bonus or commission income for a mortgage?

Lenders typically require the most recent two years of W-2s, the most recent two years of tax returns, and recent pay stubs showing year-to-date income. For commission income over 25% of total income, tax returns are reviewed closely for unreimbursed business expenses. A written verification of employment may also be required to confirm the income is likely to continue.