When it comes to qualifying for an FHA loan, many borrowers wonder if their extra earnings, like overtime, bonuses, or tips, can help boost their income profile. The short answer? Yes, but with conditions.

Overtime, Bonus, or Tip income refers to income that the Borrower receives in addition to the Borrower’s normal salary.  The Mortgagee may use Overtime, Bonus, or Tip Income as Effective Income if the Borrower has received this income for two years and is reasonably likely to continue.  Periods of Overtime, Bonus, or Tip Income less than two years may be considered effective income if the Mortgagee documents that the Overtime, Bonus, or Tip Income has been consistently earned over not less than one year and is reasonably likely to continue.

Standard
For employees with Overtime, Bonus, or Tip income, the Mortgagee must calculate the Effective Income by using the lesser of:

• the average Overtime, Bonus or Tip Income earned over the previous two years or, if less than two years, the length of time Overtime, Bonus or Tip Income has been earned; or

• The average Overtime, Bonus, or Tip income earned over the previous year.

Exception Due to COVID-19 Related Economic Event
For employees with Overtime, Bonus or Tip Income, the Mortgagee must calculate the Effective Income by using the lesser of:

• the average Overtime, Bonus or Tip Income by Standard above for the period before the COVID-19 Related Economic Event; or

• The average Overtime, Bonus or Tip Income by Standard above since the COVID-19 Related Economic Event.