Can you use overtime income to qualify for a mortgage?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

You are usually required to demonstrate a two year history of earning overtime income to use that income to qualify for a mortgage.  A shorter overtime income track record of only one year, however, may be permitted for applicants with a steady employment history. 

For example, if you have worked continuously at the same job, company or industry for multiple years and your base income is relatively consistent, then a one-to-two year history of overtime income may be allowed.  In all cases, however, an overtime income history of at least twelve months is required to include overtime in your loan application. 

If you have earned overtime for less than two years, it can be helpful if you have a low debt-to-income ratio, high credit score, a high down payment or significant financial reserves.

To include overtime income in your mortgage application, you are usually required to provide your tax returns and W-2s for the prior one-to-two years and pay stubs for the prior month to verify your income. Your tax returns and W-2s show your total annual income while your recent pay stubs show your current monthly gross income and also usually separate regular income from overtime earnings.

You may also be required to provide a letter from your employer stating that your overtime earnings are expected to remain stable going forward. Additionally, if you recently changed jobs, lenders are required to verify that your overtime income is anticipated to continue at your new job.

If your tax returns and pay stubs show a consistent level of monthly and annual overtime earnings, then lenders are likely to include the extra income in your debt-to-income ratio, which increases the mortgage you can afford.  If these documents show that your overtime income fluctuates or is declining, then lenders may average the income over the past one-to-year years, discount the income or exclude it altogether.

Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford with overtime income

In short, the higher your monthly gross income, the higher the mortgage amount you qualify for. Additionally, the more steady and permanent your income -- whether it is from regular hourly wages, salary or overtime -- the better when you apply for a mortgage.

Mortgage qualification requirements including the use of overtime income vary by lender and loan program. We recommend that you contact multiple lenders in the table below to confirm the loan you can afford based on your income and other factors. Shopping lenders is also the best way to save money on your mortgage

Sources

"B3-3.1-01, Verification of Base Pay, Bonus, and Overtime Income."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, August 7 2019.  Web.