Can you use RSU income to buy a home?

What lenders count

Lenders will usually count your RSU income once you’ve been at your company for at least a year. Under Fannie Mae’s rules, the shares have to have vested and been delivered, and lenders generally want to see 12 months of vesting history with your current employer. Sign-on stock grants don’t count.

Those are Fannie Mae’s rules, which most conventional mortgages follow. Other loan programs have their own, so I’d ask your lender to look at your actual grants before you decide on a price range.

The income your lender calculates will probably be lower than you expect. They use a 200-day average of the stock price and your history of vested shares, where you’d probably use today’s price and your next vest. They also count the shares you actually received after tax withholding, which is fewer than the number that vested.

1. 01

   Qualify

   Have your lender review your pay, vesting history, and grants before you set a budget.

2. 02

   Fund

   Line up the cash for your down payment, closing costs, and taxes, and check when you’re allowed to sell.

3. 03

   Stress-test

   Make sure you could still afford the payment if the stock dropped or your next grant was smaller. Leave your emergency fund out of the calculation.

Getting from a vest to cash at closing

Qualifying for the loan is only part of it. You also need cash at closing, and there are five steps between your shares vesting and having that cash, each of which takes time.

1. 01

   Your shares vest and settle

   Shares usually arrive within a few days to a few weeks of the vest date, after shares are withheld for taxes. Plan around the number you actually receive.

2. 02

   You’re allowed to sell

   Most public companies only let employees sell during a trading window, unless you set up a trading plan earlier. If your shares vest while the window is closed, you may not be able to sell them before closing.

3. 03

   The sale settles

   Stock sales settle one business day after the trade. Your broker may take a bit longer to let you withdraw the cash.

4. 04

   You move the cash

   Ask your broker and the title company how long transfers take and what their wire cutoff times are before you agree to a closing date.

5. 05

   Your lender reviews it

   Lenders ask about large deposits that show up shortly before closing. Keep the trade confirmation and award statement so you can show where the money came from.

Documents to have ready: your award agreements, vesting history, paystubs, W-2s, brokerage statements, and proof of funds.

Which shares to sell for the down payment

In most cases I’d sell the shares with the highest cost basis first, since they have the smallest gains. Remember to add the tax you’ll owe to the amount of cash you need. It can be tempting to wait for shares to qualify for the long-term rate, but that leaves your down payment exposed to the stock price as your closing date gets closer. If I needed the money within a year, I’d sell now and keep it in cash. How to sell down a concentrated stock position explains how to choose which shares to sell.

How this works at your company

The rules above are the same wherever you work. These guides cover what’s specific to each company.