Is Overtime and/or Bonus Income considered effective income in qualifying a HECM borrower?

Overtime and Bonus Income refers to income that the HECM borrower receives in addition to the borrower’s normal salary. The lender may use overtime and bonus income as effective income if the borrower has received this income for the past two years and it is reasonably likely to continue.

Periods of overtime and bonus income less than two years may be considered effective income if the lender documents that the overtime and bonus income has been consistently earned over a period of not less than one year and is reasonably likely to continue.

For employees with bonus or overtime income, the lender must average the income earned over the previous two years to calculate effective income. However, if the overtime or bonus income from the current year decreases by 20 percent or more from the previous year, the lender must use the current year’s income.

For additional information see Mortgagee Letter 2016-10 and the attached revised HECM Financial Assessment and Property Charge Guide, Sections 3.15 and 3.16 at

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-01009