Underwriting

How Underwriters Look at Income

W-2, self-employed, bonus, overtime, and commission—how lenders decide what counts as “stable and likely to continue” and how that shapes your approval and price range.

For homebuyers & homeowners W-2, self-employed & variable pay See how income and DTI fit together

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Behind the scenes

~7 min read

What “stable and likely to continue” really means

Underwriters don’t just look at your gross income—they look at patterns, history, and documentation to decide what can safely be used to qualify.

① How W-2 salary and hourly pay are counted, including multiple jobs.
② How lenders average bonus, overtime, and commission income over time.
③ How self-employed income and business write-offs show up in your DTI.

Plain-English • Real underwriting logic Best read before you apply

See how income and debts translate into a budget
Use these calculators to get a rough feel for payments and price ranges based on your target monthly budget. Then we can layer in true underwriter income and DTI rules together.

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Coaching insight

Who this guide is for

This guide is for you if your income is more than just a simple salary—or if you’ve ever wondered, “Why is my lender using a different number than what’s on my paystub?”

It’s especially helpful if you:

Earn bonus, overtime, commission, or have a second job and want to know how much of it “counts.”
Are self-employed, 1099, or own a business and write off a lot of expenses.
Switched from salary to commission or changed fields in the last couple of years.
Want to understand how different programs—Conventional, FHA, VA, and USDA— look at your income story.
Are trying to line up your income, debts, and DTI with the price range you’re targeting.

The goal is simple: help you see your income the way an underwriter does so you can plan ahead instead of being surprised mid-process.

Foundations

W-2, self-employed, bonus, overtime & commission—big picture

W-2 salary and hourly income

Straightforward annual salary is usually taken as-is, divided over 12 months.
Hourly pay is based on your expected hours (full-time vs. part-time) and your current rate.
A second W-2 job can sometimes be used—but usually only with a two-year history of working both jobs.

Bonus, overtime, and commission

Underwriters rarely use the most recent number in isolation—they average 24 months when possible.
A stable or increasing trend usually helps; a declining trend can lead to a more conservative number.
Brand-new variable income (a fresh commission role or brand-new overtime) often can’t be used until there’s enough history.

Self-employed and 1099 income

If you own 25% or more of a business or are paid on 1099, you’re usually treated as self-employed.
Lenders look primarily at your tax returns, not just bank deposits.
Certain expenses (like depreciation or one-time hits) can sometimes be added back, while heavy write-offs reduce qualifying income.
A declining year can trigger extra review or a more conservative average.

The common thread: lenders care about consistency and predictability, not just how big the latest paycheck looks.

Programs & pitfalls

How different programs view income—and common red flags

Conventional vs. FHA vs. VA vs. USDA

Each program follows the same big ideas but has its own flavor in how it looks at income.

Conventional: Often the most detailed on trends and averages, especially for variable and self-employed income.
FHA: Can be more flexible on credit and DTI, but still wants stable, well-documented income.
VA: Focuses heavily on residual income and stability to protect the veteran—great for certain variable pay profiles.
USDA: Looks at household income caps in addition to the income used for qualifying.

We’ll help match your income pattern to the program that treats you the most favorably while still fitting your goals.

Common income red flags

These don’t always mean “no,” but they do mean more questions:

Switching from salary to commission right before buying.
Large year-over-year drops in bonus, overtime, or commission.
Being self-employed with heavy write-offs that shrink taxable income.
Short gaps in employment without clear documentation or explanation.
Using a brand-new side hustle or second job with less than a two-year track record.

Spotting these early gives us time to build a plan instead of discovering them at the last minute.

Bottom line: your income doesn’t have to be “perfect”—it just needs to be explainable, supportable, and documented.

Numbers that matter

How income flows into DTI and approval

Once underwriters decide what income is usable, they stack it up against your debts to calculate your debt-to-income ratio (DTI).

Front-end DTI: Your proposed housing payment (principal, interest, taxes, insurance, and any HOA) divided by your qualifying income.
Back-end DTI: Housing payment plus other monthly debts (credit cards, auto loans, student loans, certain lines of credit) divided by income.
Different programs and scenarios have different target DTI ranges, and automated underwriting systems can approve or deny based on the full picture—not just one ratio.
Paying off or consolidating certain debts can sometimes move the needle more than trying to squeeze in a little more income.

This is where a clear income picture and a smart debt strategy work together to open up (or protect) your buying power.

Real-world example

Same borrower, different income story

Example scenario (for education only)

Imagine a buyer who earns a base salary, plus overtime and bonus. On paper, their year-to-date income looks strong—but underwriting slices it a few different ways:

Scenario A: Salary only. We qualify them using just the base salary. DTI looks a bit higher, and the max price point is more conservative—but the approval is built on rock-solid income.
Scenario B: Salary + averaged overtime and bonus. With a two-year history and stable trends, we can add a blended average of overtime and bonus. DTI drops, and their approval amount increases.
Scenario C: New commission role. If they just switched from salary to commission, we may need more history before that new income can be used—so the approval might have to lean on salary history or wait until the new income is seasoned.

Same person, same job field—three very different outcomes depending on which income sources pass the “stable and likely to continue” test.

Planning ahead

What to think through before you apply

Before you start writing offers, it helps to look a few steps ahead:

Job changes: Have you recently changed employers, compensation types, or fields?
Side income: Are you counting on a second job, gig, or side hustle with less than a two-year history?
Self-employed timeline: How long have you been in business, and how aggressive are your write-offs?
Variable pay stability: Are bonuses, overtime, or commissions trending up, flat, or down?
Debt strategy: Are there loans or payments that could be paid off, consolidated, or restructured before you buy?

Clarifying these items early lets us shape an approval that matches your actual reality—not wishful thinking or guesswork.

Smart questions

Questions to ask your loan advisor

Use these questions to open up a clear, honest conversation about your income and approval plan:

Which parts of my income are you using to qualify—and which parts are you not using?
How are you averaging my bonus, overtime, or commission? Over what time frame?
If I’m self-employed, how are my write-offs affecting my qualifying income?
What are my estimated DTIs now, and what would they look like if I paid off specific debts?
Is there anything about my job history or income pattern that could cause underwriter concern? If so, how can we address it up front?
Are there steps I can take over the next 6–12 months to strengthen my income profile for a future purchase or refinance?

Good questions don’t just get you approved—they help you build a sustainable, stress-tested budget for the long haul.

Ready to see how an underwriter will view your income?
We’ll review your paystubs, tax returns, and debts together—then map out how W-2, bonus, overtime, commission, and self-employed income could look inside an actual approval so you can shop with confidence.

Start your pre-approval → Ask your questions first