From "My Overtime Won't Count" to Knowing Exactly When It Does: Lily's Story
Lily went from assuming her overtime would never count on a mortgage application to knowing exactly when it does and what the lender will do with it. If your paycheck includes overtime or a bonus, her story is worth a few minutes of your time.
Lily's situation
Lily is a fictional buyer, an illustrative archetype and not a real client, but her situation comes up often. She works near Cheraw, SC, and earns steady base pay along with overtime and a bonus. Over time, that extra money has become a real part of her income.
When she started thinking about buying a home, she made a quiet assumption: lenders would ignore the extra pay and look only at her base. She almost let that assumption decide whether she would even start the conversation.
What the guideline actually says
For a conventional loan, the Fannie Mae Selling Guide, B3-3.1-05, speaks directly to this. The guideline says: "Overtime and bonus income require a two-year history to be used for qualifying. The lender averages the income over the most recent two-year period."
There are two pieces in that rule, and both matter.
First, the history. Overtime and bonus income need a two-year history before they can be used for qualifying. The income is not thrown out. It is conditional, and the condition is time.
Second, the math. The lender averages the income over the most recent two-year period. That means the lender is not picking your best month or your best year. It is looking at the whole two-year picture.
What that means in practice
For Lily, this cleared up a lot.
One strong year of overtime is not enough on its own. The guideline asks for a two-year history.
A single big month does not become her income number. The average is what counts.
Because the lender averages over the most recent two-year period, the result reflects how her extra pay actually moved across that stretch. A calm, honest picture of your own history is more useful than an optimistic guess.
Her base pay is its own piece of the story. The two-year rule is about the overtime and bonus on top of it.
How Lily prepared
Lily did not wait for a lender to tell her what her numbers looked like. Before she applied, she gathered her two years of pay history. That way she walked into the conversation already knowing what her averaged income would look like, instead of guessing.
That one step changed how she felt about the whole process. She stopped wondering whether her extra pay mattered and started planning around it.
The question to ask your loan officer
If you earn overtime or a bonus, here is the exact question to bring to your loan officer:
"Do I have a two-year history of overtime and bonus income, and can you show me how you'll average it over the most recent two-year period?"
This question does three things. It tells your loan officer you understand the rule. It makes them confirm whether your history meets the two-year line. And it asks them to show their work, so you can see how your income is being averaged instead of taking a number on faith.
Who this applies to
This article is written for homebuyers whose pay includes overtime or bonus income and who are applying for a conventional loan. Other loan programs have their own guidelines, so if you are looking at something different, the details can change. Every situation is a little different, and a short conversation can show you where you stand.
Let's look at your pay together
I am Jason Sharon, a licensed mortgage broker with Home Loans Inc, and I find the path. If your income includes overtime or a bonus and you are not sure how it will be treated, reach out and I will walk you through it. You can call me at 843-LOW-RATE or visit homeloansinc.com.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: From "My Overtime Won't Count" to Knowing Exactly When It Does
