How should gross monthly income be calculated for underwriting when bonuses and overtime are part of the income?

• A. Base salary plus verifiable, stable bonuses and overtime prorated to the period, using documented income and limiting unstable components.
• B. Base salary only
• C. Overtime should be excluded from gross income
• D. Commission income should always be included when calculating gross income

Answer: (A)

In underwriting, income used for qualification should be durable, reliable, and verifiable. When bonuses and overtime are part of earnings, the appropriate approach is to calculate gross monthly income as base salary plus those bonuses and overtime that are verifiable and reasonably stable, prorated to the underwriting period. This means using documented sources—pay stubs, W-2s, tax returns—and including only the portions of bonuses and overtime that have a history of consistency. If a bonus is discretionary or overtime is irregular, cap or exclude those components to avoid overstating the borrower’s ongoing income. This approach is better than using base salary alone because it reflects additional, dependable earnings the borrower can reasonably rely on. It’s not correct to assume all commissions are always part of gross income; commissions vary and should be included only when they’re stable and well-documented, rather than automatically included.