Restricted Stock Income, sometimes referred to as restricted stock units, may be used in certain circumstances as qualifying income when needed. Yet not all lenders have programs that accept this type of income but we do and I know how to see if your restricted stock can be used to help qualify for the home you really want.
How Restricted Stock Income is Defined
First, what is restricted stock in the first place? Restricted stock shares are those given to an employee by the employer. The term “restricted” is used because the shares of stock are not fully vested. Usually because the employee hasn’t worked at the company for the minimum amount of time needed to be 100% vested. In most cases vesting is a gradual process and the longer the employee remains with the company, the more shares of stocks the employee will be granted.
How it Works
How does a lender calculate income from this source? First, we’ll contact your employer to get written verification regarding when and how company shares are distributed to you. Second, we’ll get a two-year history of your stock distributions as well as review your restricted stock agreement showing your vesting schedule for the next three years. If this sounds a bit familiar it’s like most other verifications of income methods such as dividends and interest, commissions or bonus income. It requires at least a two-year history of receiving the stock as well as an expectation the income will continue into the future.
With this information we can calculate the income you would receive from your shares of stock by averaging the price over the two year period and include this amount with your regular monthly income. If you receive pay once per month we will ask for your most recent paycheck stub covering that 30 day period. If you get paid on the 1st and 15th of the month, we’ll ask for copies of those two paycheck stubs. You can also expect to provide us the two most recent years of W2 forms. In addition, your two most recent federally filed income tax returns, including business returns if self-employed.
If you do receive restricted stock income and you meet this criteria your restricted stock can be used as income but it can’t be mentioned enough that not all lenders have heard of this program much less offer it. But for those who do qualify and want to qualify for a larger home loan than just what their paycheck stubs say they can qualify for, this is an excellent program for the right borrower. You most likely have some questions about the details of using restricted stock as income so it’s best to pick up the phone and give me a call so we can go over how this program can help boost your income with this unique program.