How do lenders count bonus, commission and contract income when you apply for a mortgage?

They average it, and the rules differ by type. Fannie Mae's Selling Guide requires a 12-month minimum history for variable base income, recommends two years for bonus, commission, overtime and tips, and where income has a defined expiration date — as a term contract does — requires documentation that it is expected to continue at least three years from application.

That last sentence is the one that decides outcomes, and almost nobody is told about it before they apply.

One scope note before the detail. Everything below is from the Fannie Mae Single-Family Selling Guide, which governs conventional loans sold to Fannie Mae. It is not the only rulebook. FHA, VA, USDA, jumbo and portfolio loans each run on their own guidelines, and a lender may add requirements of its own on top of any of them. Ask your lender which guide they are underwriting to before you assume these sections apply to your file.

What does the guide mean by "base" income, and why does the distinction matter?

Because the required history hangs on it. B3-3.3-01, Base Income, dated 4 March 2026, opens: "Base income is received on a regular basis, independent of additional earnings such as overtime or bonuses. It is categorized as either fixed or variable."

It then defines both. Fixed base income "refers to a set salary or fixed hourly rate with guaranteed minimum hours," and the guide adds that minor variances from pay period to pay period "does not alone preclude the borrower's income from being considered fixed base income." Variable base income "refers to a fixed hourly rate with fluctuating hours, or an hourly rate that varies."

Bonus, commission, overtime and tips are not base income at all. They sit in a separate section, B3-3.3-02, with their own history requirement.

Income type	Section	Minimum history	How it is calculated
Fixed base income (salary, or hourly with guaranteed hours)	B3-3.3-01	"A minimum history is not required for inclusion as qualifying income."	Annual gross pay / 12; or (hourly rate x average hours per week x 52) / 12
Variable base income (fluctuating hours or varying rate)	B3-3.3-01	"A minimum 12-month history of receiving variable income is required."	Average of year-to-date and previous year's earnings, including at least 12 months
Bonus, commission, overtime, tips	B3-3.3-02	Two years recommended, "but no less than 12 months"	Year-to-date and previous year's earnings, divided by the months included
Seasonal income	B3-3.3-08	"A minimum two-year history is required."	Average of year-to-date and the previous two years' earnings

How is a fixed salary actually calculated?

Arithmetically, and the guide prints the formulas. B3-3.3-01 gives "Annual gross pay / 12 months", "(Biweekly gross pay x 26 pay periods) / 12 months", and for hourly work with guaranteed hours "(Hourly gross pay x average # of hours worked per week x 52 weeks) / 12 months".

There is a cross-check attached to it: "The borrower's qualifying income must be consistent with year-to-date base earnings. If year-to-date income does not reflect at least 30 days' of earnings, the lender must confirm qualifying income is consistent with the prior year's earnings."

That matters if you apply early in a calendar year, or shortly after starting a job at a higher salary. The new number has to reconcile against something.

What history does bonus, commission, overtime or tip income need?

B3-3.3-02, Bonus, Commission, Overtime, and Tip Income, dated 4 March 2026, states it as a recommendation with a floor: "A minimum two-year history is recommended; however, income received for a shorter period, but no less than 12 months, may be considered as acceptable if there are positive factors to reasonably offset the shorter income history."

So 12 months is the floor, two years is the preference, and the gap between them is filled by the lender's judgement about offsetting factors rather than by a rule you can read in advance.

Where the income is stable or increasing, the calculation is: "Calculate an average income amount using year-to-date and previous year's earnings, divided by the number of months included in the year-to-date paystub and W-2s. The calculation must include a minimum of 12 months' income."

For tips the guide allows an alternative document: "For tip income not reported by the employer, two years' personal tax returns with IRS Form 4137 may be provided in lieu of a W-2."

What happens if the variable income is going down?

It can stop counting entirely. The same section says: "The lender must confirm the current income level has stabilized after the decline; otherwise, the income is not eligible for qualifying." Where it has stabilised, the method changes — "use the year-to-date income divided by months elapsed since the income stabilized" — so the earlier, higher period drops out of the average rather than propping it up.

The identical rule appears in B3-3.3-01 for variable base income: "Decreasing: The lender must confirm the current income level has stabilized after the decline; otherwise, the income is not eligible for qualifying."

Read plainly, direction matters more than amount. A commission figure that fell last year and has held steady since is treated differently from the same figure still falling.

Does a one-off annual bonus count in the month it arrives?

No. B3-3.3-02: "the bonus income should be annualized (divided by 12) to determine the appropriate monthly bonus amount." A bonus paid in February is a twelfth of itself in every month of the file, not a spike in February.

What if something stopped you earning for a stretch?

The guide allows that period to be set aside, but only on conditions. Both B3-3.3-01 and B3-3.3-02 carry the same note: "When a documented, non-recurring event outside the borrower's control temporarily prevented them from earning income, the lender may exclude that period from the income calculation."

Three words are doing the work there — documented, non-recurring, and outside your control. All three have to hold, and the exclusion is permissive ("may"), not automatic.

What is the three-year continuance rule, and when does it apply?

This is the section that most changes the picture for anyone paid under a contract with an end date.

B3-3.1-01, General Income Information, dated 7 October 2026, sets out the principle first: "A stable and predictable flow of income is a foundational element in loan underwriting. The lender must document income is stable, has a documented history of receipt, and is reasonably expected to continue."

Then it splits income into two cases.

Where there is no end date: "If the income does not have a defined expiration date and the applicable history of receipt of the income is documented (per the specific income type), the lender may conclude that the income is likely to continue."

Where there is one: "If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, the lender must document that the income is expected to continue for at least three years from the application date."

The scope of that second sentence is worth stating precisely, because it is easier to read more broadly than it is written. It is not a general rule. Ordinary salaried and hourly base pay carries no three-year test at all — B3-3.3-01's continuance line reads: "The lender is not required to verify continuance unless they have reason to believe the income may not continue." The same sentence appears in the bonus and commission section and in the seasonal income section. The three-year documentation requirement attaches to income that expires or depletes.

There is a third bullet in the same section, and it points the other way: "If the lender is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement or a new job, the lender must use the lower income amount in qualifying, and must determine that the lower amount is stable and predictable."

For a buyer whose compensation runs on a defined term — a contract, a fixed engagement, an arrangement with a stated end — the practical consequence is that the conversation with the lender is not only about how much the income is. It is about what documentation exists for the period after the current term ends.

Can income from a job that has not started yet be used?

Sometimes, and B3-3.3-03, Employment Offers or Contracts, dated 7 October 2026, is the section. It covers future employment, not an existing contract: "If the borrower is scheduled to begin new employment under the terms of an employment offer or contract, the lender may deliver the loan in accordance with one of the options outlined below."

Under the first option the lender "must obtain and review the borrower's fully executed offer or contract for future employment," and "must use the monthly income amount in the offer letter as qualifying income."

The second option is narrower, and its conditions are worth knowing before you plan a relocation around it. It applies to a purchase of a one-unit principal residence where "the borrower is qualified using only fixed-base income." The start date must be "no earlier than 30 days prior to the note date OR no later than 90 days after the note date." Reserves are required, including "six months' PITIA for the subject property."

The section also has a provision for work that arrives in short bursts: "For a union member who works in an occupation that results in a series of short-term job assignments ..., the union may provide the executed employment offer or contract for future employment."

How is seasonal income handled?

B3-3.3-08, Seasonal Income, dated 4 March 2026, requires more history than any other category here: "A minimum two-year history is required." The calculation reaches back further too — "The lender must calculate an average income amount using year-to-date income, when present, and previous two years' earnings." Continuance follows the usual line: the lender is not required to verify it absent a reason to believe the income may not continue.

What does the lender have to collect, and when?

Documentation is set out in B3-3.2-01, Standards for Employment and Income Documentation, dated 4 March 2026: "The lender must verify employment income for all borrowers whose income is used to qualify for the loan."

Document	What the guide requires
Most recent paystub	"must be dated no earlier than 30 days prior to the initial loan application date and it must include all year-to-date earnings"
W-2 forms	"must cover the most recent one- or two-year period, based on the documentation requirements for the particular income type"
Year-end paystub	"A year end paystub reflecting earnings from the entire year is acceptable in lieu of the W-2."
Form 1005	The lender "may use the Request for Verification of Employment (Form 1005) to document employment and income."
Verbal verification of employment	Required for each borrower using employment income; see below

The verbal verification has its own timing, in B3-3.1-04, dated 7 October 2026. The lender "must verify the borrower's employment no more than 10 business days on or before the note date," extendable to 15 business days in specified cases, and it may be obtained "verbally, in writing, through an employment verification vendor, or by other means acceptable to the lender." The consequence of missing it is stated bluntly: "If the verbal VOE cannot be obtained prior to delivery, the loan is ineligible for sale to Fannie Mae."

One more rule catches people who move between employers. B3-3.2-02, Standards for Employment-Related Income, dated 4 March 2026: "Lenders must evaluate the borrower's work history to determine whether it reflects a reliable pattern of employment over the most recent two years." On multiple employers it is specific: "in no instance may the borrower have any gap in employment greater than one month in the most recent 12-month period, unless the employment is considered seasonal income."

What should you do with this before you apply?

Four things, and none of them require a decision from you yet.

Work out which category each part of your income falls into, using the table above, because the history you need is different for each. Check whether any part of it has a defined end date, because that is what triggers the three-year documentation question rather than the ordinary continuance line. Look at the direction of your variable income over the last two years, not just the total, since a decline has to be shown to have stabilised before it counts at all. And if you are moving on a start date, read B3-3.3-03's second option against your actual timeline before you assume the 90-day window covers you.

Then put the question to the lender in their own language: which sections of which guide are you underwriting my income under, and what does each one require from me.

A note on what this page is

This is process, not advice. Dreams 2 Doorsteps is a real estate brokerage practice. It is not a mortgage lender, a mortgage broker, a tax adviser or a law firm, and nothing here is an opinion on whether any particular income will be accepted on any particular file. Underwriting decisions are made by the lender against the guide the loan will be sold under, on the documents in front of them.

Every quotation and every figure above was read from the Fannie Mae Selling Guide sections listed below on 3 November 2026. Guides are amended — the sections cited here carry dates of 4 March 2026 and 7 October 2026 — so anything on this page should be checked against the current published text before it is relied on.

Sources read for this article

All at selling-guide.fanniemae.com, Fannie Mae Single-Family Selling Guide, pages footed "Published: October 07 2026".

• B3-3.1-01, General Income Information (10/07/2026) — stable and predictable income; continuance of income, including the three-year requirement for income with a defined expiration date.
• B3-3.1-04, Verbal Verification of Employment (10/07/2026) — who needs one, timing, acceptable methods, consequence of not obtaining one.
• B3-3.2-01, Standards for Employment and Income Documentation (03/04/2026) — paystub, W-2, year-end paystub and Form 1005 requirements.
• B3-3.2-02, Standards for Employment-Related Income (03/04/2026) — two-year work history, multiple employers, employment gaps.
• B3-3.3-01, Base Income (03/04/2026) — fixed and variable base income definitions, history requirements, calculation formulas, declining income, non-recurring event exclusion.
• B3-3.3-02, Bonus, Commission, Overtime, and Tip Income (03/04/2026) — history requirement, averaging, declining income, bonus annualisation, tip documentation.
• B3-3.3-03, Employment Offers or Contracts (10/07/2026) — future employment, the two delivery options and their conditions, union short-term assignments.
• B3-3.3-08, Seasonal Income (03/04/2026) — two-year history, averaging over the previous two years.

Related Fannie Mae announcements cited on those pages: SEL-2026-02, issued 4 March 2026, and SEL-2026-09, issued 7 October 2026.

Freddie Mac's Single-Family Seller/Servicer Guide sets its own requirements for commission, bonus, overtime and tip income. Its guide site would not return the relevant section when this page was written, so no Freddie Mac requirement is stated here and nothing above should be read as describing one.

Kenny Agbim is a REALTOR® with eXp Realty LLC in Dallas–Fort Worth, Texas licence 820897.