How lenders view RSUs and stock-based compensation for mortgage income

Some mortgage lenders can use stock-based compensation, including restricted stock units (RSUs), to qualify you for a home loan, but the rules are strict.

First, you generally need a 2-year history of receiving the income. Then, many conventional underwriting guidelines require documentation that shows the income is likely to continue.

Before planning to use this income to qualify for a new home loan, take the time to better understand the rules. A mortgage preapproval can show your starting point for income qualifying.

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What counts as stock-based compensation for a mortgage?

Stock-based compensation is a practice that allows companies to pay their employees with business equity rather than actual cash.

The advantage here is that, by providing shares instead of cash, the employer incentivizes employees to hit performance targets, as their compensation is tied to the company’s financial interests. It also helps stakeholders preserve cash reserves.

Restricted stock units (RSUs) are a form of stock-based equity compensation that assures employees that a particular amount of company shares will be given to them at a future date. Rather than buying stock outright, the employee earns shares over a set vesting period.

“Unlike stock options, you don’t pay anything to receive RSUs. And once vested, they show up as ordinary income on your W-2 at the current share value,” notes personal finance expert Andrew Lokenauth.

RSUs vs. RSAs vs. PSUs: How lenders see them differently

RSUs are among the main types of stock-based compensation, which also includes:

• Restricted stock awards (RSAs), which immediately award physical shares of stock on day one, but you cannot sell or transfer them until your designated vesting period ends.
• Performance stock units (PSUs), in which you are granted shares of stock only if both you and the company meet specific, pre-determined performance goals, such as hitting revenue targets.
• Employee stock purchase plans (ESPPs), which enable you to use automatic payroll deductions to buy company stock at a set discount, usually ranging from 5% to 15% off the market price.
• Incentive stock options (ISOs), whereby you receive tax-favored options to buy company stock at a locked-in stock price, allowing you to avoid ordinary income tax at the time you exercise them.
• Non-qualified stock options (NSOs), in which you receive standard stock options where you must pay ordinary income tax on the difference between your locked-in purchase price and the stock’s actual market value the moment you exercise them.

Each type has a different vesting structure, tax treatment, and level of certainty, all of which matters when a mortgage underwriter begins looking closely at it.

“For mortgage qualification, RSUs and RSAs are the main types of stock-based compensation that are counted as qualifying income,” says Realtor Dell Jeanty.

“Generally, lenders will want to treat any form of income that’s non-cash, volatile, and tied to market conditions with scrutiny.”

To determine whether a form of stock-based compensation will be scrutinized by lenders, Jeanty says to consider whether the equity meets three conditions:

• If the shares have officially vested
• If the equity is from a publicly traded company
• If you have a 12- to 24-month documented history of receiving vested shares from your employer.

Let’s take a closer look at how these different forms of stock-based compensation measure up when it comes to helping your mortgage eligibility:

Compensation type	Vesting basis	W-2 reportable?	Mortgage income treatment	Required documentation
RSUs	Time-based	Yes	Yes (with 1- to 2-year history); treated like a cash bonus; averaged by lenders to increase qualifying income	2 years of W-2s, vesting schedule, and written verification of employment (VOE)
RSAs	Time-based	Yes	Yes (similar to RSUs, requiring a 1- to 2-year history)	2 years of W-2s, stock award agreement, and written VOE
PSUs	Performance-based	Yes	Sometimes (typically requires a strict, stable 2-year history due to performance volatility)	2 years of W-2s, performance metrics/schedule, and written VOE
ESPPs	Purchase-based	No at purchase, but yes (as ordinary income) on the W-2 for the discount/gain when sold	Rarely counted as recurring income, but the stock can be sold to cover your down payment	Brokerage statements showing the sale and transfer of funds to your bank account
ISOs/NSOs (stock options)	Time-based (requires exercise)	Yes for NSOs at exercise; no for ISOs at exercise, but yes on the W-2 if sold early	Rarely counted, unless you have a documented 2+ year history of regularly exercising and selling for profit	Proof of 60+ days of "seasoned" funds in a bank account after the sale; brokerage records

The 2-year income history rule – and when it applies

The 2-year income history rule requires borrowers to furnish proof that they’ve vested and received profits from stock-based compensation. Lenders want evidence that this compensation can be considered a stable income source before it will be regarded as a reliable way to fund mortgage payments.

To measure the likelihood of you continuing your mortgage payments, many lenders prefer to see an established pattern of vesting and profit.

“This rule protects against counting a one-time signing bonus dressed up as recurring equity pay. It applies mainly to conventional loans through Fannie Mae and Freddie Mac, since FHA, VA, and USDA loans don’t have dedicated RSU guidelines and leave it to individual lender discretion,” Lokenauth adds.

This 2-year income rule applies to any borrower intending to use stock-based compensation as qualifying income for a qualified mortgage loan. However, time-based RSUs can sometimes qualify with just 1 year if your employer confirms an ongoing grant schedule.

Increasing vs. declining equity income: How lenders calculate it

Increasing equity income means your vested stock-based compensation has either grown in value or remained stable over the duration of your provided 2-year income history. Declining equity income indicates that the value of your shares is decreasing, which introduces risk for your lender.

“Lenders are conservative by nature, so they handle rising and falling equity income very differently,” explains CPA Joshua Katz. “If your RSU income has been climbing, they generally won’t just use the latest big year; they’ll average the last 2 years to smooth it out, which gives you a lower number than your best year alone.

“But if your equity income is declining, they get nervous and will typically use the lower, most recent figure rather than the average because they’re underwriting to the downside. The logic is that they’d rather assume the trend continues against you than land on income that might be shrinking.”

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What documentation lenders require

To use stock-based compensation as mortgage income, lenders typically require a 2-year history of receipt (the actual physical payout, vesting, or transfer of the compensation into your ownership) as well as proof that your income will continue for at least 3 years.

“That means you’ll need 2 years of W-2s and tax returns showing the RSU income, your vesting schedule from your employer’s stock plan administrator, recent pay stubs, and often a written verification of employment confirming the equity grants are ongoing. Some lenders also want brokerage statements showing the shares actually vested and were deposited,” says Lokenauth.

How equity compensation affects your DTI

Vested equity can count toward your qualifying earnings. That means stock-based compensation can lower your debt-to-income (DTI) ratio by increasing the gross monthly income that lenders reference when performing calculations.

To calculate your DTI, the lender will divide your total monthly debt payments by your gross monthly income.

“Let’s say your base salary is $120,000, and your average RSU income over 2 years comes to $40,000 annually. A lender adds that $40,000 to your qualifying income, bringing your total to $160,000, which lowers your DTI ratio compared to using base salary alone,” Lokenauth explains.

“If your monthly debt payments run $3,500, your DTI on base salary alone would sit around 35%, but adding the RSU income drops that ratio closer to 26%, which can be the difference between loan approval and denial.”

FHA, conventional, and jumbo: Do the rules differ?

Stock-based compensation rules vary for different types of loans.

“To qualify for a conventional loan, you must provide a 2-year receipt of vested stock or exercised options via W-2s, as well as year-to-date pay stubs. You must also provide a vesting schedule and employer confirmation of your employment status and involvement in the stock-based compensation program,” Jeanty notes.

FHA guidelines do not contain separate RSU-specific underwriting provisions. Lenders generally evaluate stock-based compensation under FHA's broader requirements for variable and continuing income.

“This means you can use stock-based compensation to qualify for an FHA loan so long as you provide a 2-year history of receiving vested stock and a copy of the compensation plan proving three additional years of continuance,” adds Jeanty.

VA lenders generally evaluate stock-based compensation as part of the borrower's overall stable and reliable income.

Stock-based compensation is generally treated as taxable income by USDA loans. Prepare to provide a 2-year history of receiving vested stock, a copy of the vesting schedule, and a copy of the compensation plan proving three additional years of continuance.

“Because jumbo loans are not backed by government-sponsored enterprises, exact rules can vary between private lenders,” Jeanty says.

“However, stock-based compensation will typically be treated as variable or complex income, requiring a document in history of vesting, employer verification of the vesting schedule, and a calculated 24-month average of the vested stock’s value.”

FAQs about qualifying with RSUs and stock-based compensation

I work at a tech company and get RSUs every year. Can I count that toward my income when applying for a mortgage?

Generally, yes, but with conditions. That’s because the lender wants to see that your RSU is a reliable, ongoing part of your income and not a one-time bonus. You’ll usually need to furnish proof of 2 years of receiving RSUs plus evidence that they’ll continue. The lender will average the vested amounts rather than counting the full grant.

My RSU income went up significantly last year compared to the year before. Will the lender use the higher number or average both years?

Most lenders will average both years rather than use the higher figure to keep the qualifying number conservative. Some lenders may use the lower year if they view the jump as unusual rather than a sustainable trend.

I've only been receiving RSUs for 14 months. Is that enough history to qualify with a lender?

That depends on the type. For time-based RSUs, 14 months can work with some lenders, particularly if your employer confirms future grants are scheduled. For performance-based RSUs, most lenders want the full 24 months before counting any of it.

I have a $500k base salary and $200k in RSUs vesting this year. Can I use all of that for mortgage qualification?

No, you can’t use the full $200,000 from a single year. Lenders typically want your 2-year average RSU income, not this year’s figure for the loan. Your qualifying number will depend on what you received in the prior year, as well.

What documents do I need to show a lender to use my RSU income for a mortgage?

Two years of W-2s and tax returns, your vesting schedule, recent pay stubs, and written verification of employment confirming ongoing grants. Some lenders also request brokerage statements confirming the shares were actually vested.

The bottom line

For eligible borrowers, documented equity compensation may increase qualifying income and potentially increase purchasing power.

That’s why it’s smart to better understand how restricted stock units and other forms of stock-based compensation work and what you’ll need when providing them as proof of income to a mortgage lender.

Will you need this type of income to qualify for a home loan? A preapproval can help answer this question.

...in as little as 3 minutes – no credit impact