Best Loan Programs for This Situation
Best guidelines for bonus income. Averaging is straightforward with two years of W-2 documentation.
Same bonus income approach. Works well for buyers with lower down payments.
For high earners where bonus income is needed to qualify above conventional limits.
Annual bonuses count as qualifying income under the same framework as overtime: you need a two-year history and employer confirmation that bonuses are expected to continue. The type of bonus matters significantly. Performance bonuses tied to an ongoing compensation structure qualify. One-time signing bonuses or discretionary bonuses with no guaranteed structure generally don't.
Performance Bonuses vs. Signing Bonuses
Performance bonuses paid annually as part of a structured compensation plan are countable with two years of history. Signing bonuses, retention bonuses, and other one-time payments are not counted because they're non-recurring. If you received a large signing bonus that significantly inflates your W-2 this year, lenders will average both years and may question the source of any large unusual income.
Discretionary Bonuses and Employer Letters
Discretionary bonuses (where the employer is not obligated to pay them) are the most difficult to use for qualification. Lenders want an employer letter confirming that bonuses are customary and expected to continue. If your employer is unwilling to commit to that language, the bonus income may be excluded. The stronger your track record (three or more years of consistent bonuses), the more likely lenders are to work with the discretionary nature.
When Bonus Income Tips the Scale
Bonus income most often becomes relevant when base salary alone gets you close but not quite to your target qualification. A buyer with $90,000 base salary and $20,000 in documented annual bonuses has a meaningful difference in purchasing power compared to base alone. At Bakersfield price points, that difference can be the gap between qualifying for the right home and settling for less.
Bonus income is straightforward when it's consistent and the employer will confirm continuance. The scenario that trips people up is a new role where the bonus structure just changed. I tell those clients: get two strong bonus years documented, then apply. Trying to count a first-year bonus usually doesn't work.
Want to include your bonus income in your mortgage qualification and see what home price you can target?
Call Dan at (661) 342-9381. He'll review your income documentation and loan options in a free call.