Restricted Stock Units (RSUs) are a valuable form of compensation that many companies use to reward and retain employees. For individuals looking to qualify for a mortgage, understanding how RSUs function as part of income and how lenders assess them is crucial.

What Are Restricted Stock Units?

RSUs are similar to quarterly or annual bonuses in that they provide an incentive for employees to remain with a company. Instead of a cash bonus, RSUs grant employees shares of stock, which vest over a predetermined period. This structure encourages employees to contribute to the company’s success, as their stock value is directly tied to company performance.

For example, a company may grant an employee 100 RSUs, with a vesting schedule of 50% after six months and the remaining 50% after a year. Once vested, the employee can either hold onto the shares or cash them out. The timeline and percentage of vesting vary by company.

Types of RSUs

Companies issue RSUs in two main ways:

• Performance-Based RSUs: These depend on individual or company performance. Employees may receive RSUs based on meeting specific targets or goals.
• Time-Based RSUs: These vest at regular intervals, such as annually or semi-annually, or at major company milestones (e.g., five-year employment marks).

Using RSUs as Income for Mortgage Qualification

To use RSUs as qualifying income for a mortgage, lenders require a history of receiving them and proof of continued vesting. Here are key considerations:

1. Consistent History – Most lenders require at least two years of RSU history.
2. Proof of Ongoing Vesting – Borrowers must provide documentation that they will continue receiving RSUs.
3. Stock Valuation – The stock price is calculated using a 200-day moving average. Fannie Mae and Freddie Mac follow this method to determine stock value.
4. Taxation – The RSUs must be taxed income, meaning they appear on tax returns or pay stubs.

Loan Program Treatment of RSU Income

• Fannie Mae & Freddie Mac: Use the 200-day moving average to determine RSU value and take the average stock income received over the past two years.
• FHA & VA: These programs do not have specific RSU guidelines. However, some lenders may allow RSUs if they are taxable and meet consistency requirements.
• USDA: Uses a two-year average of RSU income while considering expected RSUs in the next 12 months.

Final Thoughts

RSUs can be a reliable source of income when applying for a mortgage, provided they meet consistency and documentation requirements. For borrowers with a steady history of RSUs and proof of future vesting, this income source can significantly impact mortgage qualification.

If you receive RSUs and are looking to qualify for a mortgage, North Star Mortgage Network can help you navigate the process and maximize your income eligibility. Contact us today to discuss your options!