The short answer: Lenders don't qualify you on your best month or the bonus you expect in December. Under Fannie Mae's rules, bonus, commission, overtime and tip income generally needs a history (two years recommended, at least 12 months with offsetting strengths) and is averaged over your year-to-date pay plus the prior year. If this year's pace is lower than last year's, the lender has to treat it as declining income and may count less of it, or none. If you plan to buy in 2027, the next eight weeks decide what your 2026 W-2 says, so it's worth a look now.

As of November 2, 2026, based on Fannie Mae's Selling Guide. FHA, VA, jumbo and non-QM lenders have their own rules, and individual lenders can be stricter.

Why does this matter right now?

Because the year is almost over. For a buyer applying early in 2027, a lender will typically look at your 2026 W-2, your 2025 W-2 and your first 2027 pay stubs. Whatever bonus, commission or overtime lands in 2026 becomes part of that two-year picture, and once December 31 passes, it's set.

It's also a reminder that the job market is in the news. The Bureau of Labor Statistics releases the October jobs report this Friday, November 6, at 8:30 a.m. Eastern (BLS release schedule). Headlines move markets, but your loan approval depends on your own pay history, not the national one.

How do lenders calculate bonus, commission and overtime income?

Fannie Mae's guide, section B3-3.3-02 (Fannie Mae Selling Guide), lays out the method most conventional lenders follow:

  • History. Two years is recommended. Income received for a shorter period, but no less than 12 months, can be considered if there are positive factors that offset the shorter history.
  • Trend first. The lender compares your monthly year-to-date earnings with prior years to see whether the income is stable, rising or falling.
  • Stable or rising: average it. The lender averages your year-to-date and prior-year earnings over the months they cover, using at least 12 months of income.
  • Bonuses are annualized. An annual bonus is spread across 12 months rather than counted in the month it was paid.
  • Declining: prove it's leveled off. If the income dropped, the lender must confirm it has stabilized. If it hasn't, it isn't eligible for qualifying. If it has, the lender uses the year-to-date income since it stabilized.
  • Documents. Your most recent pay stub plus two years of W-2s, or a written verification of employment from your employer, plus a verbal check with your employer before closing.

Fannie's employment standards add that lenders look for a reliable pattern of employment over the most recent two years, and a two-year history is recommended for each income source if you have more than one job (Fannie Mae, B3-3.2-02).

What does that look like in real numbers?

Here's a hypothetical example with three salespeople, each applying at the end of October 2026. The numbers are made up to show the method, not drawn from any real borrower.

  • Rising: $48,000 in commissions in 2025 ($4,000 a month) and $45,000 so far in 2026 ($4,500 a month). Averaged over 22 months, that's about $4,227 a month. Rising income is good, but the lender still averages; it doesn't use the higher 2026 pace on its own.
  • Declining: $60,000 in 2025 ($5,000 a month) and $40,000 so far in 2026 ($4,000 a month). That's a decline, so the lender must first confirm the income has stabilized. If it has, the figure used is based on the lower, more recent pay, not the average. If it hasn't, it may not count at all.
  • New to bonuses: a first-ever bonus program that started six months ago, paying the equivalent of $1,000 a month. With less than 12 months of history, under Fannie's guide it generally can't count yet, however reliable it feels.

Hypothetical: monthly variable pay vs. what may count for qualifying

  • Your 2026 monthly pace
  • Roughly what may count
$4,500$4,227Rising$4,000$4,000Declining (if stabilized)$1,000$0Less than 12 months
Hypothetical example for illustration only, using the averaging and trend rules in Fannie Mae Selling Guide B3-3.3-02. The declining case could count for less, or nothing, if the lender can't confirm the income has stabilized. Source: Fannie Mae Selling Guide B3-3.3-02 (method); figures hypothetical

What can I do before the year ends?

  1. Pull your last pay stub of the year when it comes, and your 2025 W-2 now. Compare this year's variable pay with last year's. If it's down, know why.
  2. Get the explanation on paper. A territory change, a new comp plan, or a stretch of leave can all explain a dip. Fannie's guide lets a lender exclude a documented, non-recurring period when something outside your control temporarily stopped you from earning (B3-3.3-02). That only helps if it's documented.
  3. Make sure your pay stubs break it out. Lenders need to see base pay separately from bonus, overtime and commission. If your stub lumps them together, ask payroll for a breakdown or a written verification of employment.
  4. Think twice before switching jobs or comp plans. A move from salary to mostly commission, or into a new role with a new bonus structure, can restart the clock on that income. If you're planning to buy, talk with a loan officer before you sign the new offer.
  5. Treat a December bonus as savings, too. Even when a bonus can't count as income, it can help with your down payment and reserves. Leave the trail clean: a deposit that shows up on your bank statement as payroll generally doesn't need further explanation, while a large deposit with no clear source has to be documented before it can be used on a purchase (Fannie Mae, B3-4.2-02).

A bonus-and-commission buyer's timeline to a 2027 purchase

  1. 1

    November–December

    Know your trend

    • Compare 2026 year-to-date variable pay with your 2025 W-2
    • Write down the reason for any dip
    • Deposit bonuses by payroll direct deposit
  2. 2

    January

    Lock in the paperwork

    • Save your final 2026 pay stub
    • Collect your 2026 W-2 when it arrives
    • Ask payroll for a pay breakdown if stubs lump it together
  3. 3

    Before you shop

    Get a real pre-approval

    • Have the lender calculate your qualifying income
    • Ask how they treated bonus, overtime and commission
    • Hold off on job or comp-plan changes until after closing
General planning steps, not a commitment to lend. Lender requirements vary. Source: Fannie Mae Selling Guide B3-3.3-02 and B3-4.2-02

Does it matter if I'm self-employed or a 1099 contractor?

Yes. Everything above applies to W-2 employees who earn variable pay. If you're paid on a 1099 or own your business, lenders generally look at your tax returns instead, and what you deduct on them directly lowers the income you can qualify with. I covered that in self-employed and planning to buy? Start with next year's tax return. If job security is on your mind more broadly, see what AI job worries mean for your mortgage.

Derek\'s take

In 20 years and more than 1,200 loans, some of the most frustrating calls I've had are with top-producing salespeople who earned great money and still came up short on a pre-approval, because last year was a record and this year was merely very good. The underwriting rule isn't personal; it's arithmetic. The fix is almost always planning: knowing your trend before you shop, getting the dip explained in writing, and timing your application around your W-2s. In California, where the price of a home leaves little room for surprises, that planning matters. If you're counting on bonus, overtime or commission to buy next year, I'm glad to run your numbers the way an underwriter will. Book a call with me. Thirty minutes, no credit pull, no obligation.

Frequently asked questions

Can I use my bonus income if I've only received it for one year?

Possibly. Fannie Mae recommends a two-year history but allows income received for no less than 12 months if there are positive factors that offset the shorter history. Less than 12 months generally won't count under Fannie's rules.

Does a big December bonus raise my qualifying income right away?

Usually not by much. Lenders annualize bonuses and average variable income over at least 12 months, so one large check gets spread across the year.

What happens if my commissions went down this year?

The lender must treat it as declining income. It can count only if the lender confirms the income has stabilized, and then it's based on the lower, more recent figure rather than a two-year average.

Do lenders need to prove my overtime will continue?

Not under Fannie Mae's guide, unless the lender has reason to believe it may not continue. Some lenders ask anyway, so it helps if your employer will confirm overtime is likely to continue.

Can I put my bonus toward my down payment?

Yes, and it's often the best use of it. Deposit it in a way that clearly shows it came from your employer, such as direct deposit, so the lender can source it without extra paperwork.

This article is general education, not tax or legal advice, and not a commitment to lend or an offer of credit. All examples are hypothetical. Rules shown are from Fannie Mae's Selling Guide; FHA, VA, jumbo and other loan programs, and individual lenders, may differ.

Sources

This article is general education, not a commitment to lend, an offer of credit, or tax, legal or investment advice. All loans are subject to credit approval, income and asset verification, and property appraisal. Programs, rates, terms and limits change without notice; figures are current as of the publish date. Derek Shao, NMLS #242117, CA DRE #01358261. Financial Dynamics, Inc. DBA Emory Financial, Company NMLS #393986. Equal Housing Opportunity.