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Can you use deferred compensation to qualify mortgage?

A significant amount of my annual income comes from deferred compensation. How is deferred compensation counted when calculating my income when I apply for a mortgage?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

Many lenders will include deferred compensation in calculating your income as long as the deferred compensation continues for at least three years. Lenders will use the amount of deferred compensation received in a year as opposed to the total amount of compensation granted to you.  It is important to reiterate that most lenders require deferred compensation to continue for three years so if your deferred comp vests over two years or if you are in year two of a three year vesting period you may not get credit for that income. It is also important to highlight that lenders will require that you provide documentation that verifies your deferred income which can create confidentiality issues with your employer. Finally, for both deferred compensation and bonus income it is helpful, and in many cases you are required, to show lenders (by providing tax documents) that you have earned similar income over the prior two years. Some lenders may also require a written statement from your employer that your bonus income is expected to continue although this is not always the case.

It is important to note that different lenders have different policies on this issue. I spoke to Wells Fargo, Citibank and Bank of America about this topic within the past three months and they all used the three year rule for deferred compensation. Other lenders may have stricter policies and may not count any deferred compensation as income.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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