Using RSUs and Restricted Stock to Qualify for a Mortgage in Washington State

If you work at Amazon, Microsoft, Google, or any of the hundreds of tech and corporate employers in the greater Seattle area, there’s a good chance equity compensation — restricted stock units, restricted stock grants, or stock options — makes up a meaningful portion of your total pay. Understanding how mortgage lenders treat this income is essential before you apply, because the rules are more nuanced than most buyers expect and the guidelines have recently been updated.

Here’s what Washington State tech workers and equity-compensated buyers need to know.

The Core Principle for Equity Income

Like all variable income, equity compensation can be used for mortgage qualifying if it is documented, consistent, and likely to continue. The challenge with RSUs and restricted stock is that “consistent” and “likely to continue” require specific documentation — equity award agreements, vesting schedules, and brokerage statements — that not every loan officer knows how to ask for or evaluate correctly.

Equity compensation can also be used as assets for down payment and closing costs independently of whether it qualifies as income — and for many buyers this is actually the more straightforward path.

Restricted Stock (RS) and Restricted Stock Units (RSUs)

Both restricted stock and restricted stock units are common forms of equity compensation throughout Washington State — and both are treated similarly for mortgage qualifying purposes. The key distinction: with restricted stock, shares are granted immediately but cannot be sold until they vest; with RSUs, the shares themselves aren’t delivered until vesting occurs. For qualifying income purposes, lenders evaluate both the same way under both Fannie Mae and Freddie Mac guidelines.

RS and RSU income — Fannie Mae

Fannie Mae requires a two-year history of receiving RS or RSU income before it can be used for qualifying. You must also document that vesting will continue for at least three more years — typically through an equity award agreement or grant letter from your employer.

The income is calculated based on the number of shares vesting per year multiplied by the stock’s fair market value, then averaged over the documented history.

RS and RSU income — Freddie Mac

Freddie Mac recently updated its RS and RSU guidelines in ways that meaningfully expand options for buyers with shorter vesting histories:

• 12–24 month history now permitted: Freddie Mac now allows the use of less than 24 months of RS or RSU history — but not less than 12 months — when the lender provides a written analysis and compensating factors supporting the shorter timeframe. Previously, a full two-year history was required in all cases.
• Recurring vs. nonrecurring awards: Freddie Mac now distinguishes between two types of awards:
  • Recurring awards — granted regularly as part of your ongoing compensation package — must be likely to continue for at least three years
  • Nonrecurring awards — one-time or irregular grants — must have at least three years of vesting and distribution remaining on the vesting schedule at the time of application
• Updated income calculation: Freddie Mac now uses a 200-day simple moving average stock price to calculate RS and RSU income, replacing the previous 52-week average. The average no longer needs to be calculated as of the application date and can be dated in accordance with standard age of documentation requirements.

The practical impact of the Freddie Mac updates is significant for buyers who have been at a company for 12-18 months and have been receiving equity awards but don’t yet have a full two-year history. Previously those buyers had no path to using RSU income for qualifying — now there may be a path with the right documentation and compensating factors. This is an area where working with an experienced loan officer makes a real difference.

RS and RSUs as assets for down payment

Vested RS or RSU shares that have been sold and converted to cash can be used as liquid assets for down payment and closing costs regardless of vesting history. Unvested shares are not counted as assets since the shares haven’t been received yet.

If you plan to sell vested shares to fund your down payment, timing and documentation matter. Sell the shares, move the cash to the account you’ll use for closing, and let the transaction settle before applying. Your loan officer will need brokerage statements documenting the sale and the deposit. Moving money through multiple accounts creates additional documentation requirements — keeping it simple is always better.

Stock Options and ESPP (Employee Stock Purchase Plans)

Stock options and ESPP shares are treated similarly to RSUs when it comes to mortgage qualifying:

• Vested and exercised options converted to cash can be used as assets for down payment and closing costs
• ESPP shares that have been sold can be used as assets once the cash is in your account
• Using option income or ESPP income as qualifying income is more complex — it depends on the loan program and requires documented consistency over time, similar to RSU income

One important note: if you’re planning to exercise options or sell ESPP shares as part of your down payment strategy, consult with your tax advisor before doing so. There are tax implications — including potential ordinary income treatment on ESPP gains and AMT considerations for incentive stock options — that a mortgage lender cannot advise you on.

Using Equity Compensation Strategically

Down payment vs. qualifying income — which is better?

For buyers with significant equity compensation, this is one of the most important strategic questions to answer before applying. Using vested shares as a larger down payment can eliminate or reduce mortgage insurance, lower your loan amount, and improve your rate through better loan-to-value pricing. In some cases this produces better results than trying to qualify the income — especially if your vesting history is short or the documentation requirements are complex. Running both scenarios is always worth doing before committing to an approach.

Timing your application around vesting

If you’re close to a significant vest date, timing your application to capture that income or those assets can meaningfully improve your position. Conversely, if you’re in the middle of a large stock sale or have unusual deposit activity in your accounts, waiting until things settle and the paper trail is clean is usually advisable.

Don’t make large moves without asking first

Selling a large block of shares, transferring funds between brokerage and bank accounts, or exercising options in the weeks before applying can create documentation complexity. Always discuss planned transactions with your loan officer before executing them — not after.

What Documentation Will You Need?

For RS, RSU, and other equity income, lenders typically require:

• Most recent two years of W2s (or one year if using the Freddie Mac 12-month provision)
• Equity award agreements or grant letters showing the vesting schedule and terms
• Vesting schedule documentation confirming awards are recurring or showing remaining vesting period for nonrecurring grants
• Most recent brokerage statements showing current account value and recent transaction history
• Evidence of shares sold and proceeds deposited if using equity as down payment assets
• Most recent pay stubs showing year-to-date income including any RS or RSU income reported

If your compensation also includes cash bonuses or overtime, see the companion guide:
Using Bonus, Overtime, and Commission Income to Qualify for a Mortgage in Washington State.