variable income

Variable income (overtime, bonus, commission, part-time, seasonal, tips) qualifies for mortgage purposes based on three universal factors: documented history of receipt, trending analysis (stable/increasing vs. declining), and a reasonable likelihood of continuance.

---

Agency Guideline Requirements

Fannie Mae — Bonus, Commission, Overtime & Tip Income (B3-3.3-02)

• Documentation: Completed Form 1005 (Request for Verification of Employment), OR most recent paystub and two years' W-2s; verbal VOE also required.
• Income History: "A minimum two-year history is recommended; however, income received for a shorter period, but no less than 12 months, may be considered as acceptable if there are positive factors to reasonably offset the shorter income history."
• Stable or Increasing: "Calculate an average income amount using year-to-date and previous year's earnings, divided by the number of months included in the year-to-date paystub and W-2s. The calculation must include a minimum of 12 months' income."
• Declining: "The lender must confirm the current income level has stabilized after the decline; otherwise, the income is not eligible for qualifying. To calculate income, use the year-to-date income divided by months elapsed since the income stabilized."
• Bonus Annualization: "When bonus income is used for qualification, the lender must calculate the monthly amount accurately for use in the trending analysis. For example, if a borrower receives an annual bonus on March 31st of each year, the bonus income should be annualized (divided by 12) to determine the appropriate monthly bonus amount."
• Non-Recurring Exception: "When a documented, non-recurring event outside the borrower's control temporarily prevented them from earning income, the lender may exclude that period from the income calculation."

Fannie Mae — Variable Base Income (B3-3.3-01) Fannie Mae

Applies to base pay where hours fluctuate (e.g., hourly workers with variable schedules). Minimum 12-month history required.

• Average Income Method: Stable or increasing = average using YTD and prior year earnings (minimum 12 months); declining = YTD divided by months elapsed in current year.
• Average Hours Method: "The lender must multiply the average monthly hours (based on at least the most recent 12 months) by the current fixed hourly rate."
• Note: "The pay raise policy in B3-3.2-02 does not apply to variable income. Any pay raises for variable base income must be in place prior to closing."

Fannie Mae — Seasonal Income (B3-3.3-08)

• History: Minimum two-year history required.
• Qualifying Income: "The lender must calculate an average income amount using year-to-date income, when present, and previous two years' earnings."
• Documentation: Form 1005 or most recent paystub and two years' W-2s, plus verbal VOE.

FHA

• Overtime, Bonus, or Tip Income: "The Mortgagee may use Overtime, Bonus, or Tip Income as Effective Income if the Borrower has received this income for the past two years and it is reasonably likely to continue. Periods of Overtime, Bonus, or Tip Income less than two years may be considered Effective Income if the Mortgagee documents that the Overtime, Bonus, or Tip Income has been consistently earned over a period of not less than one year and is reasonably likely to continue."
  • Calculation: lesser of (a) two-year average, or (b) one-year average.
• Commission Income: Minimum one year in same or similar line of work, reasonably likely to continue; Effective Income = lesser of the two-year average (or length of time if shorter) or the one-year average.
• Part-Time Income: "The Mortgagee may use Employment Income from Part-Time Employment as Effective Income if the Borrower has worked a part-time job uninterrupted for the past two years and the current position is reasonably likely to continue." Average over two years; if pay rate increase is documented, may use 12-month average at current rate.
• Seasonal Employment: "The Mortgagee may consider Employment Income from Seasonal Employment as Effective Income if the Borrower has worked the same line of work for the past two years and is reasonably likely to be rehired for the next season."

USDA

• Key Variance Rule: "Significant variances (increase or decrease) of 20 percent or greater in income from the previous 12 months must be analyzed and documented...before considering the income stable and dependable."

---

Lender Overlays / Matrix

Mega Capital — Conforming/DU Programs

• Bonus and Overtime: "Borrowers relying on overtime or bonus income for qualifying purposes must have a history of no less than 12 months to be considered stable." Documentation: completed WVOE, or most recent paystub and W-2s for the most recent two-year period.
• Commission: "A minimum history of two (2) years of commission income is recommended; however, commission income that has been received for 12 to 24 months may be considered as acceptable income, as long as there are positive factors to reasonably offset the shorter income history." Documentation: completed WVOE (Form 1005), most recent paystub, and W-2s for the most recent two-year period.
• Secondary Employment: Minimum two-year history recommended; no less than 12 months with positive offset factors.

Mega Capital — HELOC Program Mega Capital

• Bonus or Overtime: "Bonus or overtime income must be averaged over the most recent 2 years unless it is declining, then the most recent 12 months will be averaged. When the income has been received for less than 2 years but greater than 18 months, the income can be used to qualify, however the income must be averaged over 24 months."
  • Special Bonus Rule: "When the loan application date is on or after October 1st and the income documentation does not show any YTD bonus income, the prior year payroll stub showing bonus income was paid out in the fourth quarter is required."
• Commission: "Commission income is defined as a fee or percentage paid to an employee for performing a service and may be accepted as stable income if the income has been received for at least 2 years." Same averaging rule as above: 2-year average unless declining (then most recent 12 months); 18–24 months history = qualify but average over 24 months.
• Variable Income Calculation Example:
  • "The paystub(s) show variable income types. The borrower has worked for the same employer for the past 2 years and the income has increased year over year."
  • 2023 W-2: $100,000 − $62,400 base = $37,600 variable; 2022 W-2: $80,000 − $62,400 base = $17,600 variable
  • $37,600 + $17,600 = $55,200 ÷ 24 months = $2,300/month qualifying variable income
  • "When using the most recent paystubs and 2 years W-2 forms to calculate the variable income...the variable income must show as 'Other' in the Income Source section on the final 1003."

Mega Capital — Silver Jumbo Mega Capital Mega Capital

• Bonus: "The borrower must have a 2-year history of receipt to use as qualifying income and it must be likely to continue for the next three years. Earnings must be level or increasing; compensating factors must exist if decreases in the last year."
• Commission: "The borrower must have a two-year consecutive history of receiving commission income and the commission income must be likely to continue for the next three years...If there are large fluctuations, the borrower must provide a written explanation to support the increase or decrease in income."
• Overtime: "The borrower must have a 2-year history of receipt to use as qualifying income and it must be likely to continue for the next three years."
• Part-Time, Seasonal, and Secondary: "Part-time, seasonal, or second-job income may be used to qualify if it can be verified as having been received for the previous 2-years and if it has a strong likelihood of continuation...Occasionally, with extraordinary circumstances less than a 2-year history may be considered — but no less than 12-months — provided there is a strong likelihood income will continue."
• Tips/Gratuities: 2-year history required; must appear in two years of taxable income (W-2s or 1040s). "If the trend is stable or increasing, income can be averaged over the two-year period." "If the trend is declining, the income may not be stable and additional analysis must be performed...Income should not be averaged over the period of decline."

Mega Capital — Platinum Jumbo

• Documentation (Salaried/Commission/Overtime/Bonus): YTD paystub; W-2s or W-2 transcripts for most recent two years; VVOE required.
• "WVOE may be required for a borrower's income sourced from commissions, overtime and/or other income when the income detail is not clearly documented on W-2 forms or paystubs."
• "WORK# verification of employment also acceptable with two (2)-year history of earnings."
• One-year income documentation requires minimum two-year history at same employer.

Mega Capital — MVP Non-QM Program Mega Capital

• Bonus/Commission: "A two (2) year average is required, an exception can be considered with one-year minimum history of receipt is required and must be likely to continue. Employer to document likelihood of continuance."
• Secondary Employment: "Second job income considered stable if received for two (2) years and likely to continue. Must be working both jobs simultaneously, for consideration."
• General Philosophy: "All borrowers should have a two-(2) year income history from employment or other allowable sources. The expectation is that income year over year is stable or shows a trend with a gradual increase." Mega Capital

Mega Capital — MCFI Simple Elite Bank Statement Program Mega Capital

• Bonus, Commission, and Overtime: "A two-year history receipt is required. Borrowers in the same line of work but with different employers will be considered on an exception basis."
• Documentation: current paystub + W-2s + WVOE (breaking down variable pay for current year and prior two years); absent a WVOE, year-end paystubs from prior two years may substitute.
• "Careful consideration must be given to the pay structure of the income type when qualifying income. For example, bonus income may only be paid on an annual basis. When that is the case, and the annual bonus has been paid out as evidenced by the current paystub, that figure must be annualized for income calculation purposes."

JMAC Lending — ZUMA Prime Non-Conforming JMAC Lending

• "Variable income sources are eligible provided the borrower has a minimum one (1) or two (2) years history of receiving such income in the same line of work, based on the documentation type. Variable income earned for less than one (1) year may not be used for qualifying income."
• "Variable income is to be calculated by using an averaging method consistent with the documentation provided. Averaging method must take into account the borrower's history of receipt, the frequency of payment, and the trending of the amount of income being received."
• Variable Trust Income: When variable trust income has been received for less than 24 months but not less than 12 months, it may be considered as stable income with compensating factors.

Windsor Mortgage — Correspondent Manual

• "All income calculated by an averaging method must be reviewed to assess the borrower's history of receipt, the frequency of payment, and the trending amount of income being received."
• "Two or more years of receipt of a particular type of variable income is recommended; however, variable income that has been received for 12 to 24 months may be considered acceptable income if the borrower's loan application demonstrates that there are positive factors that reasonably offset the shorter income history."
• Note: Cyclical overtime examples cited include transportation employees operating snowplows in winter and package delivery workers with holiday overtime — legitimate reasons why amounts may be inconsistent yet still eligible for qualifying.

Nations Direct — Non-QM

• Overtime: Two-year history required. "If the employment verification states that the overtime income is unlikely to continue, it may not be used in qualifying."
• Bonus: Two-year history required from same employer; one-to-two-year history may be acceptable with favorable offset factors. Must be separately documented and calculated.
• Commission: Borrower receives more than 25% of annual income from commissions; two-year consecutive history in the same field required; average of last two years used.
• Part-Time: Two-year uninterrupted history; less than two years may be included if underwriter documents likelihood of continuance. "Use of part-time or second job income requires scenario review and approval prior to closing."
• Seasonal Income: Two-year history required; verified via most recent paystub and prior year W-2s. "Use of seasonal income requires scenario review and approval prior to closing."
• Tips/Gratuities: "Gratuities and tips can only be included in qualifying income if they have been included in the prior two years of taxable income."

---

Program Comparison — Minimum History Requirements

---

Critical Underwriting Conditions

• Trending is mandatory across all programs. Stable or increasing = multi-year average. Declining = use current stabilized level or current YTD ÷ months elapsed. Never average a declining period.
• Bonus annualization: Annual bonuses must be divided by 12, not by months elapsed since payment — a distinction that can materially affect the qualifying figure.
• Verbal VOE is universally required across all program types at or near closing, regardless of other income documentation.
• USDA carries the most flexible history minimums (1 year for most types); Mega Capital Silver/Platinum Jumbo are the most stringent (2 years + 3-year likelihood of continuance).
• Q4 application timing (Mega Capital HELOC): If application date is on or after October 1 and no YTD bonus appears in current documentation, a prior year-end paystub confirming Q4 bonus payment is required.
• Nations Direct Non-QM part-time and seasonal income: Both require scenario review and approval prior to closing.