FHA Overtime, Bonus, and Commission Income Rules

Overtime, bonus, and commission income can absolutely help a borrower qualify for an FHA loan.

The catch is that FHA does not look only at what you are earning on your latest paycheck. Variable income has to show enough history and stability for the lender to treat it as effective income.

That is why two borrowers with the same current annual earnings can receive different qualifying-income calculations.

FHA does not apply one universal three-year rule to employment income

A common oversimplification is that every type of FHA income has to be expected to continue for at least three years.

That is not the general rule for ordinary overtime, bonus, and commission income.

FHA has specific standards for each income type. For variable employment income, the key themes are documented history, the calculation required by FHA, and a reasonable likelihood that the income will continue.

Some other FHA income categories do have their own defined continuance periods. That does not turn three years into a blanket rule for all employment income.

FHA rules for overtime income

FHA can use overtime income when the borrower has received it for the past two years and it is reasonably likely to continue.

There is also an important exception for borrowers with a shorter history.

A period of less than two years can still be considered when the lender documents that the overtime has been consistently earned for at least one year and is reasonably likely to continue.

So a borrower with 18 months of steady overtime is not automatically disqualified just because the borrower has not reached a full two years.

How FHA calculates overtime income

Current FHA methodology is designed to keep a recent stronger year from automatically inflating qualifying income above the longer pattern.

For overtime, bonus, or tip income, the lender uses the lesser of:

• the average earned over the previous two years, or the actual period earned when it has been earned for less than two years
• the average earned over the previous one year

That “lesser of” calculation is important.

If variable earnings are trending down, the prior-year average can reduce the amount that qualifies. If the longer history is lower than the most recent year, the longer average can control instead.

The lender also reviews the current employment documentation and the overall trend. A calculation that looks good on paper does not require the underwriter to ignore evidence that the income has stopped or is unlikely to continue.

FHA rules for bonus income

Bonus income follows the same basic FHA standard as overtime and tip income.

A two-year history is the normal standard, with the same ability to consider a shorter period when the bonus has been consistently earned for at least one year and is reasonably likely to continue.

A bonus does not have to be identical every year.

What matters is whether the lender can document a usable history and determine an FHA-compliant effective-income amount.

For example, a borrower who received a substantial bonus once three years ago but nothing since has a very different pattern from a borrower who has received a recurring annual bonus for the past 18 months.

Discretionary bonuses are not automatically disqualified

The word “discretionary” does not automatically make a bonus unusable.

The lender still looks at whether the borrower has actually received the income, the documented history, the current trend, and whether it is reasonably likely to continue.

A company saying that bonuses are never guaranteed is not, by itself, the same as saying the borrower has no qualifying bonus income.

At the same time, a lender cannot simply annualize a one-time bonus with no history and call it stable FHA income.

FHA rules for commission income

Commission income has its own FHA standard.

Current FHA guidance allows commission income to be used as effective income when the borrower has earned it for at least one year in the same or similar line of work and the income is reasonably likely to continue.

That is different from an older rule that is still repeated online about commission exceeding 25 percent of total earnings.

Do not use the old shortcut that says commission above 25 percent automatically requires a full two-year commission history and tax returns solely because it crossed that percentage.

Current FHA Handbook language uses traditional or alternative employment documentation for commission income. Other documentation may still be required elsewhere in the file based on the borrower’s circumstances, but the old 25-percent rule should not be presented as the current FHA baseline.

How FHA calculates commission income

FHA uses a similar “lesser of” approach for commission income.

The lender calculates effective commission income using the lesser of:

• the average commission income earned over the previous two years, or over the actual period earned when it has been earned for less than two years
• the average commission income earned over the previous one year

That means a recent spike in sales does not automatically allow the lender to qualify the borrower using the highest recent month.

It also means a decline matters.

If the most recent one-year average is below the longer average, that lower figure can control the qualifying calculation.

What if you changed jobs?

A job change does not automatically erase all variable-income history.

The lender has to determine whether the current income meets the FHA standard and, for commission income, whether the borrower has been earning commission for at least one year in the same or similar line of work.

A borrower who changes companies but stays in the same type of commissioned sales work is a different situation from someone who just entered a commission-based occupation for the first time.

For overtime and bonus income, the lender still has to document the history, consistency, and likelihood of continuation.

This is one of those areas where the full employment story matters more than a single date on the current paystub.

What documents should borrowers expect?

The exact documentation depends on the underwriting method and the lender’s approved verification process, but borrowers should expect the lender to verify employment and earnings.

The August 12, 2026 FHA Handbook update specifically clarified the types of employment verification available by defining:

• Written Verification of Employment
• Electronic Verification of Employment
• Reverification of Employment

Paystubs, W-2 information, and employment verifications can all be part of the analysis depending on the file and the documentation method being used.

For commission income, current FHA guidance calls for traditional or alternative employment documentation.

For the broader FHA income framework, see our FHA income requirements guide.

The important point for borrowers is that variable income has to be supported by records. A lender cannot qualify overtime or commission simply because the borrower says it will continue.

What if the income is declining?

Declining variable income deserves attention early.

Because FHA uses the lesser of the applicable longer-term average and the previous one-year average for these income types, a weaker recent year can directly reduce qualifying income.

The lender also evaluates whether the income is reasonably likely to continue.

If overtime has stopped, a bonus program ended, or commissions fell because the borrower moved into a different role, the lender has to account for what is actually happening.

This is why borrowers should not estimate their FHA qualifying income by multiplying the latest paycheck by 26 or 52 when a meaningful part of the check is variable.

What about seasonal overtime or bonuses?

Seasonal patterns are not automatically a problem.

If a factory regularly offers overtime during the same part of each year, or an employer pays a recurring annual bonus, the lender can evaluate that history under FHA’s variable-income rules.

The issue is whether there is a documented pattern and a reasonable expectation of continuation, not whether the extra income appears evenly in every paycheck.

Lender overlays are still possible

FHA establishes the minimum program requirements. Individual lenders can have additional underwriting requirements or documentation practices that are more conservative than FHA’s baseline.

That is why it is useful to ask a specific question when a lender excludes income:

“Is this an FHA requirement, or is this your lender’s policy?”

Sometimes the answer is FHA. Sometimes it is an overlay. Knowing which one you are dealing with can change the next step.

A practical example

Suppose a borrower has received overtime for 18 months.

FHA does not automatically reject it for being under two years because the borrower has already crossed the one-year minimum that can be considered under the shorter-history exception.

The lender still has to document that the overtime was earned consistently and is reasonably likely to continue.

Then the lender applies FHA’s averaging methodology rather than simply using the borrower’s highest recent overtime month.

That is the pattern to remember. History first, then calculation, then continuation.

What borrowers should do before applying

If overtime, bonuses, or commissions are important to your approval, gather your income records before the lender has to chase them.

Be ready to explain:

• how long you have received the income
• whether you changed employers
• whether you stayed in the same or similar line of work
• whether the income has increased or declined
• whether the employer changed the overtime, bonus, or commission structure
• whether the current year is tracking differently from prior years

A clean explanation cannot replace FHA documentation, but it helps the lender identify the right documentation early.

Variable income is not a loophole and it is not automatically a problem. FHA has a defined way to evaluate it. The closer your real earnings pattern fits that documented history, the easier the underwriting conversation tends to be.

Official FHA guidance used for this update

This article was reviewed against HUD’s Single Family Housing Policy Handbook 4000.1, last revised August 12, 2026, including the TOTAL and manual underwriting sections for overtime, bonus, tip, commission, and employment verification.