# Overtime, bonus and commission income: Fannie, Freddie, FHA

Updated September 26, 2026

Fannie Mae, Freddie Mac and FHA all want about two years of overtime, bonus or commission history, and all accept a shorter history of at least 12 months when it is justified. The math differs: Fannie averages year-to-date and prior-year earnings, Freddie averages the documented years plus year-to-date, and FHA takes the lesser of the two-year and one-year averages.

## Key numbers

- **12 months** minimum history when a shorter record is justified, at all three agencies (B3-3.3-02; 5303.1(d)(ii); II.A.4.c.v(B))
- **10% / 30%** Freddie fluctuation levels that call for more analysis and likely more documentation (5303.1(d)(i))
- **3 years** of likely continuance Freddie requires for overtime, bonus and commission income (5303.1(d)(ii))

## Program comparison

| Check | Fannie Mae (B3-3.3-02) | Freddie Mac (5303.1(d)(ii)) | FHA (4000.1 II.A.4.c.v, ix) |
|---|---|---|---|
| History | Two years recommended. No less than 12 months with positive offsetting factors | Two years consecutive. One to two years may be acceptable | OT/bonus/tips: two years, or at least one year if consistently earned. Commission: at least one year |
| Continuance | Verify only if there is reason to doubt it | Likely to continue for the next three years | Reasonably likely to continue (Effective Income: at least the first three years) |
| Documents | Form 1005, or recent paystub plus two years' W-2s, and a verbal VOE | YTD paystub, two years' W-2s and a 10-day pre-closing verification, or a written VOE and a 10-day PCV | Paystub plus a two-year written VOE, or a two-year electronic VOE, or paystub, two years' W-2s and a phone verification |
| Stable or rising | Average YTD and prior-year earnings, minimum 12 months | Average the most recent years and YTD over the required history | Lesser of the two-year average and the one-year average |
| Declining | Confirm it has stabilized, then YTD ÷ months since stabilization | Use YTD. Over a 10% decline: analysis of the reason and evidence of stability | Apply the lesser-of rule and substantiate likely continuance at the amount used |

## How short a history is too short

Fannie counts income received for "no less than 12 months" if "there are positive factors to reasonably offset the shorter income history." Freddie wants two consecutive years but takes one to two if the lender documents why the income is stable, weighing layered risk and ability to repay, and "the income history must be at least 12 months."

FHA wants two years for overtime, bonus and tips, or less if the income "has been consistently earned over a period of not less than one year." Commission needs "at least one year in the same or similar line of work" (II.A.4.c.v(B), ix(B)).

None of the three defines a sufficient offsetting factor. That is the underwriter's call, so what you check for is a written justification.

## What the table leaves out

The documents row above covers the basics. Here are the details it can't hold. Fannie's paystub must be dated no earlier than 30 days before the initial application and show all year-to-date earnings (B3-3.2-01). Freddie's written-VOE route must cover year-to-date and two years, plus the 10-day PCV (5303.1(d)(ii)(A)). FHA requires employment to be reverified within 10 days before the note date.

The FHA trap is the shortcut that waives direct verification of past employment. It applies only when "only base pay is used to qualify," so it's gone the moment overtime or bonus is counted (II.A.4.c.ii(C)).

## One file, three answers

The quickest way to see the differences is to run the same file through all three. The numbers are illustrative. A salaried borrower earns overtime, and the file holds a June 30 paystub (six months year-to-date) and two years of W-2s.

| Period | Overtime | Monthly |
|---|---|---|
| Year 1 (W-2) | $10,800 | $900 |
| Year 2 (W-2) | $11,400 | $950 |
| Current YTD (6 months) | $5,880 | $980 |

Fannie converts year-to-date income to a monthly figure, compares it with prior years, and on a stable or rising trend averages year-to-date and prior-year earnings "divided by the number of months included in the year-to-date paystub and W-2s," using at least 12 months (B3-3.3-02). Here that's ($11,400 + $5,880) ÷ 18 = $960.00 a month.

Freddie averages "the most recent years and YTD income over the applicable number of months of required history and documentation": ($10,800 + $11,400 + $5,880) ÷ 30 = $936.00 a month. It also measures fluctuation. At 10% or less the trend is consistent. Between 10% and 30%, more analysis is required unless a verified pay raise or a documented income breakdown supports the increase. Above 30%, more analysis is required and more documentation will likely be needed (5303.1(d)(i)). Here, YTD at $980 against a two-year average of $925 is 5.9%, so the trend is consistent.

FHA takes the lesser of the average over the previous two years (or the whole period if shorter) and the previous year for overtime and commission (II.A.4.c.v(C), II.A.4.c.ix(D)). Do not derive a definitive FHA amount from this summary alone: document the months included in each period, obtain the earnings breakdown needed to calculate them, and confirm that the amount used is reasonably likely to continue. Annual totals plus a midyear paystub do not establish a unique rolling-period calculation.

Handbook Update 18 removed the COVID-19 exception to these formulas as obsolete content. Changes of that kind may be applied now and must be implemented by November 10, 2026. The formula itself is unchanged from the November 26, 2025 edition.

## When the income is declining

Change one number: year-to-date overtime is only $4,200, or $700 a month, 26% below Year 2.

Fannie says "the lender must confirm the current income level has stabilized after the decline; otherwise, the income is not eligible for qualifying." Qualifying income becomes year-to-date income divided by the months since it stabilized, or nothing. A period when a documented event outside the borrower's control temporarily stopped the income may be excluded (B3-3.3-02).

Freddie "must use the YTD income and must not include the previous higher level," so $700 is the ceiling. The exception is a documented one-time event, such as an injury, after which the borrower returned to the earlier level. A decline over 10% needs an analysis of the reason and support that the income has stabilized, and any excluded period must still leave at least 12 months in the calculation (5303.1(d)(i), (d)(ii)(A)).

FHA's averaging formula does not replace its continuing-income requirement. With current overtime down to $700 a month, flag a higher historical average unless the file substantiates why the qualifying amount is reasonably likely to continue. Do not assume that the absence of a separate numerical YTD-decline formula makes the decline irrelevant.

## The annual bonus trap

A bonus paid once a year must not be spread over the months on the paystub. Fannie's example: if the bonus arrives every March 31, "the bonus income should be annualized (divided by 12)" (B3-3.3-02). Freddie's version: bonuses received in February of the prior and current years "must be averaged over a 2-year period," and a 15-month average "is inaccurate." A 15-month divisor on a once-a-year bonus is one of the easiest errors to catch.

The lender remains responsible for the qualifying income.

## FAQ

**Can overtime with less than two years of history be used?**
Yes, with at least 12 months and documented offsetting factors (Fannie B3-3.3-02, Freddie 5303.1(d)(ii), FHA II.A.4.c.v(B)).

**How does FHA calculate commission income?**
The lesser of the two-year average (or the average over the period earned, if shorter) and the one-year average, with at least one year in the same or a similar line of work (II.A.4.c.ix).

**What is Freddie's trigger for extra analysis?**
A fluctuation above 10%. For an increase of up to 30%, a verified raise or a documented income breakdown can stand in for it (5303.1(d)(i)).

## Sources

- Fannie Mae Selling Guide, published September 2, 2026: https://selling-guide.fanniemae.com/
- Fannie Mae B3-3.3-02, Bonus, Commission, Overtime, and Tip Income (03/04/2026): https://selling-guide.fanniemae.com/sel/b3-3.3-02/bonus-commission-overtime-and-tip-income
- Fannie Mae B3-3.2-01, Standards for Employment and Income Documentation (03/04/2026): https://selling-guide.fanniemae.com/sel/b3-3.2-01/standards-employment-and-income-documentation
- Freddie Mac Single-Family Seller/Servicer Guide, Section 5303.1, Employed income (06/03/26), from the Guide PDF current as of Bulletin 2026-I, published September 16, 2026: https://guide.freddiemac.com/app/guide/section/5303.1
- HUD Handbook 4000.1, Update 18 (issued August 12, 2026), II.A.4.c.ii, v and ix (TOTAL) and II.A.5.b (Manual), effective 11/10/2026: https://www.hud.gov/sites/default/files/Housing/documents/40001-hsgh-Update-18.pdf
- HUD Handbook 4000.1, prior edition (issued November 26, 2025), for the removed COVID-19 exception: https://www.hud.gov/sites/default/files/OCHCO/documents/40001-hsgh-Update-17.pdf

This guide summarizes agency requirements as of the date above. It is not legal advice.