Buying in LA when most of your pay is stock

The problem is averaging, not the stock itself

A lender wants two things from any income before it counts: a history showing you received it, and evidence it keeps arriving. Salary clears both without anyone thinking about it. Restricted stock clears the second one easily, since a vesting schedule is about as clear a promise as underwriting ever sees. It is the first one that causes trouble.

Standard guidelines want roughly two years of receipt and three more years of vesting ahead. Hit that and the shares get averaged, usually over the trailing period rather than at today's price, and the result lands in your qualifying income like any other line.

Miss it and the income often gets set aside completely. Not reduced. Set aside. Someone earning well into six figures suddenly qualifies on base salary alone, which in this market is the difference between a house and a condo.

Newly public employers are the hard case

This is the situation I see most across the Westside and the South Bay. The company went public recently, the grants have been accumulating for years, and the employee has real wealth sitting in a brokerage account. But the stock has only traded for a few months, so there is no meaningful average to take and a conventional underwriter has nothing to work with.

Three directions usually open it back up. An asset based program qualifies you from the portfolio rather than from income, which suits someone whose balance sheet is far stronger than their pay stub. A portfolio lender keeps the loan rather than selling it, so it can underwrite the vesting schedule on its own judgment. Or you qualify on base salary and use the stock where it is simplest, as down payment and reserves.

Which one fits depends on the gap between what you earn and what you need to show, and on how long you can wait. Worth knowing before you write an offer rather than after.

What to have ready

• End of year pay stubs for the last two years, showing the full earnings breakdown rather than just the final total
• W-2s and complete federal returns for the same two years
• Your vesting schedule, which is the document that does the most work in the whole file
• Two months of statements on brokerage, 401k and IRA accounts, every page including the blank ones
• Your offer letter or comp statement if the grant structure changed recently

The multifamily angle

A fair number of equity heavy buyers in LA end up looking at two to four units rather than a single family home. Owner occupied, you can put as little as five percent down on a fourplex, live in one unit and let the other three carry most of the payment. The rental income also helps the file, which matters when your own income is the complicated part.

More on that in the Long Beach two to four unit guide, and on buying in Los Angeles generally.

Common questions

Do lenders count RSU income on a mortgage?

Yes, most agency lenders will count vested restricted stock as qualifying income when there is a documented history of it and a reasonable expectation it continues. The usual ask is two years of receipt and a vesting schedule showing at least three more years ahead. Where it gets difficult is a short history, which is common at a recently public employer.

My company IPO'd less than a year ago. Can I still use the stock?

Often yes, but not through a standard conventional file. A short trading history means the lender has little basis to average the value, so the income is frequently set aside entirely. The workable paths are an asset based program that qualifies you on the portfolio itself, a portfolio lender that will underwrite the vesting schedule directly, or qualifying on base salary alone and using the stock for the down payment and reserves.

How do lenders value the shares?

Typically an average over the trailing period rather than today's price, and often with a haircut for volatility. That means a run-up in the last few months helps less than people expect, and a dip hurts less than feared. The averaging is also why a longer history is worth more than a higher recent price.

Can I use unvested shares?

Not as income. Unvested stock is not yours yet, so it cannot be counted as earnings and it cannot be counted as assets. The vesting schedule still matters because it is the evidence that the income continues, which is what supports using the vested history in the first place.

What about a large annual bonus on top of salary?

Same framework. Two years of receipt, averaged, with the continuance supported by an employer letter or the offer terms. Bonus income is usually easier than stock because the dollar figure is unambiguous.

Is it better to sell shares for the down payment or borrow against them?

That is a tax question as much as a lending one, and it is worth asking your accountant before you decide. From the lending side, a margin loan or securities backed line creates a payment that counts against you, while a sale does not. Sold shares need to be seasoned and sourced, so the timing matters if you are close to writing an offer.