Do you work for Google, Facebook, Snapchat or one of the many flourishing startups in California? Restricted stock units are a prime example of a financial incentive provided to employees of companies like these. When you have a non-traditional income from working at either a privately held or publicly held company, you may wonder whether or not it can qualify towards your new mortgage. Learn more about what restricted stock units are and how to qualify for a loan using RSUs.
What are restricted stock units?
Restricted stock units, or RSUs, are company shares granted by an employer. However, they’re considered “restricted” because you cannot sell them until they vest. This typically happens after you’ve been at the company for a predetermined amount of time. RSUs often vest in stages, allowing you to access portions of the shares every year. In addition to tenure milestones, your employer may also offer RSUs based on performance.
An important feature to understand about RSUs is the way they are taxed. First, they’ll count towards your taxable income the year (or years) in which the RSUs vest. Depending on the value of the stock at the time (and other factors), this has the potential to bump you into a higher tax bracket. When you go to sell your RSUs, you’ll have to pay capital gains tax on the appreciation that occurred between the vesting date and the date of sale.
Can RSUs be used as income for a home loan?
Qualifying for a loan using restricted stock units can be tricky if you’re not working with the right lender. In fact, many mortgage lenders don’t allow applicants to use RSUs for a loan at all. This is especially true of lenders who aren’t familiar with compensation packages that are more common in California. At Carlyle Financial, we partner with regional lenders that often do allow applicants to use RSUs and other types of vested income as part of their application requirements.
The success of every mortgage application depends on individual circumstances. That’s why it’s imperative to find a mortgage bank that understands complex and nuanced financial scenarios. If you own vested RSUs, it’s certainly possible to have them counted towards your income, especially when you work with Carlyle Financial.
How can you use vested income to qualify for a mortgage?
There are a few basic requirements when using RSU income to apply for a mortgage. A copy of your vesting schedule is needed, so be prepared to provide that information. Your RSU history will need to be verified, and you can only use vested RSUs — not granted RSUs. We typically require a minimum of two years for vested shares, and your vesting schedule should last at least an additional three years from the time of application.
Just as we do with any other mortgage application, we’ll work directly with your employer to obtain a written verification of employment and will also undergo income tests to ensure your work situation is stable. Credit scores, debt-to-income ratios, and other standard requirements are also taken into consideration.
Are you interested in learning more about how your Restricted Stock Units can be used to qualify for a mortgage? Working with the right lender goes a long way when finding a loan product that works with all of your income sources. Restricted stock units don’t have to restrict your ability to qualify for the home of your dreams. Contact a mortgage banker at Carlyle Financial today to learn more.