After accounting and tax evasion scandals involving stock options rocked the early 2000s, technology employers began issuing companywide Restricted Stock Units (RSU) as a form of compensation to attract and retain employees. Similar to stock options, a vesting period of up to several years is required before shares are distributed to the employee. But due to the sometimes volatile and uncertain nature of individual company stock performance, banks have traditionally disallowed its use as qualifying income for mortgage loans.
Respecting our niche of Facebook, Google and Apple clientele, however, we have long secured relationships with lenders that do allow RSUs! Since we are situated right in the heart of Silicon Valley, it is very common for our borrowers to receive (significant) RSU compensation from their technology-based employers so it is a vital component that usually makes or breaks a borrower’s loan qualification.
Here are some details: borrowers need a two-year history of receiving (not vesting) RSU income and a likelihood of continuing to receive it for an additional three years. As long as the borrower can provide a vesting schedule and award letter detailing the terms and conditions, we simply take a percentage (usually 75% but we have lenders that can go to 100%), of the monthly average from the last two full calendar years.
In a recent file, borrower earned a base salary of $185,000 per year but also had received RSU compensation for an additional $280,000 per year (based on a two-year average). This increased their borrowing power from approximately $830,000 to just over $2,000,000! Clearly, that is a game-changer given the lofty home prices in Silicon Valley.
Please note that not all companies that issue RSUs are allowed – it needs to be publicly traded, and underwriters will also review the company’s long-term stability – for any questions regarding RSU income, please consult with a mortgage advisor!