Using Restricted Stock Units (RSUs) to Get a Mortgage in California

Many employers offer restricted stock units, or RSUs, as part of an employee’s overall compensation package. It’s a way to grant company shares to the employee, but in a “restricted” fashion. RSUs are especially popular in the San Francisco Bay Area, where companies use them to attract talent.

Employees who receive RSUs might wonder if they can use their restricted stock units to qualify for a mortgage loan in California. They want to know if it “counts” toward their total income, and if that might help them buy a home.

The short answer is — it depends. Some mortgage lenders in California will count restricted stock units as income, for mortgage underwriting and approval purposes. While others do not. It varies. Also, there are some specific requirements as to how the RSU is calculated toward overall income.

What Are Restricted Stock Units?

If you’re researching this article to learn how you might use restricted stock units to get a mortgage loan in California, you probably already know what RSUs are. But for those who are less familiar with the concept, a brief overview is in order…

Restricted stock units are a compensation method that allows employers to grant company shares to their employees. The “restricted” term is used because RSUs are typically subject to a specific vesting schedule.

In most cases, the vesting schedule is based on (A) the length of employment or (B) some kind of predetermined performance goal. So, throughout the rest of this article, we’ll be using the terms “performance-based” and “time-based” vesting.

Restricted stock units can vary from one company to the next. But in a typical scenario, employees receive their shares after the vesting date or after the performance goals have been met. Such details are typically spelled out within the offer letter, employee handbook, or some other company-provided information.

Using RSU as Income for a Mortgage Loan

Moving on to the subject of this article: Can you use your restricted stock units when qualifying for a mortgage loan in California? In other words, do RSUs count as income when applying for a home loan?

The answer to both questions is yes — but only in certain cases. Restricted stock units can sometimes be counted as income for mortgage qualification purposes. But not all banks and lenders allow this. Some mortgage lenders in California will count RSU assets toward the overall income, while others do not.

And even in those cases where it can be counted, certain requirements and restrictions may apply.

Some of our lending partners offer mortgage products where restricted stock units can be counted toward income. The requirements can vary for RSUs with performance-based vesting, and for those that include time-based vesting.

In both cases, borrowers usually have to provide year-to-date (YTD) paystubs showing all earnings including payouts of restricted stock units, along with W-2 forms. Alternately, borrowers could provide a verification of employment (VOE) that shows all year-to-date earnings, including payouts of restricted stock units.

But there are some differences with regard to the length of documentation. For performance-based vesting, borrowers may have to provide documents going back two calendar years. For time-based vesting, borrowers typically have to show documents for the most recent calendar year.

Additional Documents Might Be Needed

Additional documentation requirements may apply for both vesting types:

• Evidence that the stock is publicly traded.
• Documentation that verifies the vesting provisions are time-based or performance-based, as applicable. This might include a copy of the RSU agreement and/or an offer letter from the employer.
• A copy of the vesting schedule currently being used, which details past and future vesting.
• Evidence of receipt of the previous year’s payout. This might include year-end paystub, or a statement from the employer paired with a bank statement showing transfer of funds.

Note: These are some of the most common requirements when using RSUs as income for a mortgage loan. Additional requirements could apply, depending on the situation. Please contact us if you have questions about using restricted stock units to qualify for a home loan in California.

Working With a California Mortgage Broker

As mentioned earlier, some mortgage lenders in California will count RSUs as income, while others do not. And for those that do, the requirements can vary depending on the type of vesting and other factors.

This underscores the benefit of working with a California mortgage broker. If you apply for a home loan through an individual bank or lender, you’ll only have access to that company’s products. And that particular company might not even offer loans that allow restricted stock units as income.

A mortgage broker, on the other hand, has access to multiple lenders. This gives the borrower access to a broader range of products, and a better shot at finding the right product.

Bridgepoint Funding is a mortgage broker based in the Bay Area. We serve the entire state of California and work with lenders that have “RSU-friendly” mortgage options. So please contact us with your financing-related questions.