Stock Compensation & California Jumbo Loans: RSU Underwriting Guide

Why Stock Compensation Complicates Jumbo Approval

Bay Area tech workers earn substantial income from equity compensation—RSUs (restricted stock units), stock options, ESPP (employee stock purchase plans), and performance shares. But mortgage underwriters treat stock comp very differently than W-2 salary. Understanding how lenders count (or don’t count) equity income and assets is critical for jumbo loan approval in California’s expensive markets.

The challenge: Most jumbo lenders follow Fannie Mae/Freddie Mac guidelines (even for portfolio loans), which require 2+ years of stock comp history and strict vesting schedules. If you’re a new hire at a tech company with a 4-year RSU vesting schedule, traditional lenders may exclude 75% of your stock comp from qualifying income—tanking your debt-to-income ratio and killing your approval.

Portfolio lenders offer more flexibility: counting unvested RSUs as reserves (with discounting), using bank statements to verify deposits from stock sales, and manually underwriting compensating factors (high reserves, low LTV, strong credit). But you need to know which lenders offer stock-comp-friendly programs and how to structure your application to maximize approval odds.

Types of Equity Compensation (And How Lenders Treat Each)

1. RSUs (Restricted Stock Units)

What they are: Company grants you stock units that vest over time (typically 4 years: 25% year 1, then quarterly). When RSUs vest, you receive shares (taxed as ordinary income) that you can sell or hold.

How lenders count RSUs for income:

• Vested RSUs that you’ve sold: Full credit toward income (shown on W-2, paystubs, tax returns).
• Unvested RSUs: Excluded from income by most conforming lenders (Fannie/Freddie guidelines). Portfolio lenders may count unvested RSUs if you have 2+ years of vesting history at 50%–70% discount.

Example: You have $400K in unvested RSUs vesting over 4 years ($100K/year). Conforming lender: counts $0 toward income (not vested). Portfolio lender: counts $100K/year × 60% = $60K/year qualifying income ($5K/month).

How lenders count RSUs for reserves:

• Vested RSUs (already received, held as stock): Count at 60%–70% of current market value (discounted for volatility, taxes).
• Unvested RSUs: Most lenders exclude from reserves. Some portfolio lenders count unvested RSUs at 40%–50% discount if vesting within 12 months.

Example: You have $300K in vested company stock (held in brokerage). Lender counts $300K × 70% = $210K toward reserves. You have $400K unvested RSUs vesting in 18 months. Most lenders: $0 toward reserves. Portfolio lender (aggressive): $400K × 40% = $160K toward reserves (if vesting schedule is verified).

2. Stock Options (NSOs and ISOs)

What they are: Company grants you the option to buy stock at a set price (strike price). If stock price rises above strike, you can exercise options, buy shares at strike price, and sell at market price (profit = market price – strike price – taxes).

How lenders count stock options:

• Exercised and sold options: Full credit toward income (shown on W-2, tax returns).
• Unexercised options: Excluded from income by all lenders (not realized income until exercised).
• In-the-money options (market price > strike price): Some portfolio lenders count as reserves at 40%–50% of intrinsic value (market price – strike price, discounted for taxes and volatility).

Example: You have 10,000 stock options with $50 strike price. Stock trades at $150. Intrinsic value: ($150 – $50) × 10,000 = $1M. After taxes (assume 40% combined federal/state/AMT), net value = $600K. Portfolio lender may count $600K × 50% = $300K toward reserves.

Caveat: Most lenders don’t count unexercised options at all—too volatile, too contingent. Only aggressive portfolio lenders (private banks with relationship banking) consider this.

3. ESPP (Employee Stock Purchase Plan)

What it is: Company lets you buy stock at a discount (typically 15% off market price) through payroll deductions.

How lenders count ESPP:

• Stock purchased and sold: Full credit toward income (shown on W-2, tax returns).
• Stock purchased and held: Counts as reserves at 60%–70% of market value (same as vested RSUs).
• Future ESPP contributions: Excluded from income (not guaranteed, discretionary).

Example: You contribute $25K/year to ESPP (15% discount = $29.4K stock value annually). Lender counts realized gains from sales as income, but not the $4.4K discount (until you sell and report on tax return). If you hold $100K in ESPP stock, lender counts $100K × 70% = $70K toward reserves.

4. Performance Shares / Bonuses

What they are: Stock or cash bonuses tied to company or individual performance (annual bonuses, sales commissions, performance RSUs).

How lenders count performance comp:

• If you have 2+ years of consistent bonuses: Lenders average bonuses over 2 years and add to qualifying income (at 50%–100% depending on consistency).
• If bonuses are inconsistent (e.g., $50K one year, $10K next year): Lenders may exclude or average at 50% discount.

Example: Tech sales rep earns $150K base + $80K average annual bonus (last 2 years: $75K, $85K). Conforming lender: counts $150K base + $80K bonus = $230K qualifying income. Self-employed consultant with inconsistent bonuses ($100K, $20K, $60K over 3 years): Lender averages $60K/year but discounts to $30K due to volatility.

Portfolio Lender Strategies for Tech Workers with Stock Comp

Portfolio lenders (credit unions, private banks, regional banks holding jumbo loans) offer manual underwriting that conforming lenders can’t match. Key advantages:

1. Bank Statement Income Programs

If your stock comp is inconsistent (new hire, big IPO windfall one year, smaller vesting next year), bank statement programs let you qualify based on deposits instead of tax returns.

How it works: Lender reviews 12–24 months of personal or business bank statements, calculates average monthly deposits, applies 50%–75% income factor (to account for business expenses if self-employed), and underwrites based on that income.

Example: Tech worker with $300K W-2 salary + $200K RSU vesting (inconsistent year-to-year). Tax returns show $300K one year, $500K next year. Conforming lender struggles with volatility. Portfolio lender uses bank statements: $40K/month average deposits × 70% = $28K/month qualifying income ($336K/year)—higher and more stable than tax return analysis.

Best for: New hires with large RSU grants vesting unevenly, employees with big stock option exercises in one year, contractors with equity comp.

2. Asset-Based Underwriting (Asset Depletion)

If you have substantial liquid assets ($2M+) from stock sales, IPOs, or investment portfolios, asset depletion programs let you qualify without traditional income verification.

How it works: Lender divides total liquid assets by loan term (360 months for 30-year mortgage), treats result as monthly income.

Example: Tech worker with $4M liquid assets (vested stock, brokerage accounts, savings) applies for $2M jumbo. Asset depletion income: $4M ÷ 360 = $11,111/month qualifying income. If PITI is $14K/month, borrower doesn’t qualify on assets alone—but lender may combine asset depletion with W-2 salary to hit DTI target.

Best for: Early employees of successful startups (Uber, Airbnb, Stripe, etc.) with large stock windfalls; retirees with large portfolios; foreign nationals with offshore assets.

3. Manual Underwriting with Compensating Factors

If automated underwriting (DU/LP) declines you due to stock comp volatility or high DTI, portfolio lenders can manually approve based on:

• High credit score (760+)
• Low LTV (75% or less, 25%+ down payment)
• High reserves (12+ months PITI, including vested stock)
• Stable base salary (even if stock comp is inconsistent)

Example: Bay Area tech worker applies for $1.8M jumbo with $150K base salary + $300K inconsistent RSU income. DTI on base salary alone = 55% (auto-decline). But borrower has 770 credit, 30% down, $500K reserves (vested stock + savings). Portfolio lender manually underwrites: approves at 6.75% based on compensating factors.

Best for: Tech workers with strong financials except income volatility; buyers with large down payments from stock sales.

How to Structure Your Jumbo Application with Stock Comp

Step 1: Separate Vested from Unvested Stock

When applying, provide:

• Vested stock (already received, held in brokerage or sold): Full documentation (brokerage statements, tax returns showing sales).
• Unvested stock (future grants): Stock award letter, vesting schedule, current market value. Be clear this is unvested so lender doesn’t mistake it for liquid assets.

Mistake to avoid: Listing $1M in unvested RSUs as “liquid assets” on your application. Lender will ask for proof, discover it’s unvested, and question your credibility.

Step 2: Document Stock Comp History (2+ Years if Possible)

Lenders want to see consistency. Provide:

• W-2s (last 2 years) showing RSU vesting as income
• Pay stubs (last 2 months) showing RSU vesting
• Tax returns (last 2 years) showing stock sales, capital gains
• Brokerage statements (last 2 months) showing vested stock holdings

If you’ve been at your company <2 years, provide:

• Offer letter with stock grant details
• Vesting schedule (4-year schedule, cliff vesting, etc.)
• Current market value of unvested RSUs (to show potential reserves)

Step 3: Sell Vested Stock to Boost Reserves

If you’re borderline on reserve requirements (need $200K, have $150K cash + $100K vested stock), sell vested stock 2–3 months before applying to convert it to cash reserves.

Why 2–3 months? Lenders scrutinize “large deposits” (>50% of monthly income). If you sell $100K of stock and deposit it 1 week before applying, underwriter will ask for sourcing (OK if it’s from stock sale, but adds paperwork). Selling 2–3 months prior means it’s “seasoned” and avoids large deposit scrutiny.

Step 4: Ask About Portfolio Lender Programs Upfront

Before applying, ask lenders:

• “Do you count unvested RSUs toward reserves or income?”
• “Do you offer bank statement income programs for tech workers with stock comp?”
• “Can you manually underwrite if my DTI is high but I have strong compensating factors?”

Red flag lenders: “We follow Fannie Mae guidelines exactly” = rigid, no flexibility. Green flag lenders: “We’re a portfolio lender; we can manually underwrite stock comp” = flexibility.

Real Scenarios: Tech Workers Getting Jumbo Approval

Scenario 1: New Hire with Large RSU Grant, Minimal Vesting History

• Profile: Software engineer, new hire at pre-IPO startup
• Salary: $200K base + $800K RSU grant (4-year vest, 25% year 1)
• Loan: $1.5M jumbo (Palo Alto), 20% down
• Challenge: Only 6 months at company, $50K RSUs vested so far (not enough income history for conforming)

Conforming lender outcome: Declines (insufficient stock comp history, DTI too high on base salary alone).

Portfolio lender outcome: Uses bank statement income (verifies $30K/month deposits from salary + RSU vesting) + counts unvested RSUs at 50% as reserves ($800K × 50% = $400K). Approves manually with 9 months reserves, 6.875% rate.

Key: Portfolio lender’s flexibility on unvested RSUs as reserves + bank statement income = approval.

Scenario 2: Stock Option Exercise Windfall, Inconsistent Income

• Profile: Early employee at successful startup, exercised options for $2M gain (one-time event)
• Income: $150K W-2 salary + $2M option exercise (shows on tax return as ordinary income, not repeatable)
• Loan: $2.5M jumbo (San Francisco), 25% down
• Challenge: Tax return shows $2.15M income one year, $150K prior year (huge variance)

Conforming lender outcome: Averages $1.15M/year, but underwriter questions sustainability (one-time event). May decline or reduce qualifying income to $150K base only.

Portfolio lender outcome: Uses asset-based underwriting (borrower has $3M liquid post-option exercise). Asset depletion: $3M ÷ 360 = $8,333/month. Combined with $150K salary ($12,500/month), total qualifying income = $20,833/month. PITI = $18K/month → DTI 86% (on paper), but assets cover payments for 12+ years. Manually approved at 7.00% based on asset strength.

Key: Asset depletion bypasses income volatility—assets themselves qualify borrower.

Scenario 3: Consistent RSU Vesting, High DTI on Base Salary

• Profile: Tech product manager, 3 years at company
• Salary: $180K base + $120K/year RSU vesting (consistent)
• Loan: $1.3M jumbo (Mountain View), 20% down
• DTI on base salary: 52% (too high for conforming)
• DTI on total comp: 35% (acceptable)

Conforming lender outcome: Automated underwriting (DU) approves because borrower has 2+ years of consistent RSU vesting (lender counts $120K/year stock comp as income). Approved at 6.50% with 6 months reserves.

Portfolio lender outcome: Also approves (not needed in this case—conforming works).

Key: Consistent stock comp (2+ years) = conforming approval. Inconsistent or <2 years = need portfolio lender.

Vested Stock as Reserves: Tax and Volatility Considerations

When lenders count vested stock as reserves, they apply 30%–40% discount to account for:

1. Taxes on Sale

If you hold $300K in vested company stock and need to liquidate for reserves, you’ll pay:

• Capital gains tax (federal 15%–20% + CA 13.3% = 28%–33% combined)
• Ordinary income tax if stock vested <1 year ago (federal 37% + CA 13.3% = 50%+)

Example: $300K vested stock, held >1 year. Sell at market → owe 30% capital gains tax = $90K tax, net $210K. Lender counts $300K × 70% = $210K reserves (matches after-tax proceeds).

2. Market Volatility

If your company stock is volatile (tech stocks often swing 20%–50% in 6 months), lenders discount further to account for price risk between approval and closing.

Example: You have $400K in Tesla stock (volatile). Lender counts $400K × 60% = $240K reserves (40% discount for volatility + taxes).

3. Concentration Risk

If 80%+ of your reserves are in one company’s stock (your employer), lenders worry about concentration risk (if stock crashes, you lose reserves + job simultaneously). Some lenders require diversification (e.g., 50% of reserves in cash/index funds, 50% in company stock).

Strategy: Sell concentrated company stock 3–6 months before applying, diversify into index funds or cash, and avoid large deposit scrutiny.

FAQs: Stock Compensation & California Jumbo Loans

Q: Can I use unvested RSUs as reserves for jumbo loan approval?
A: Most conforming lenders: no. Some portfolio lenders: yes, at 40%–50% discount if vesting within 12 months. Aggressive private banks: yes, at 30%–40% discount for relationship banking clients.

Q: Do I need to sell vested stock to meet reserve requirements?
A: No—lenders count vested stock holdings at 60%–70% of market value (discounted for taxes, volatility). You don’t need to sell unless you prefer cash reserves.

Q: If I exercise stock options, how long until lenders count that income?
A: If you exercise and sell immediately, income shows on W-2 and tax return (counts as income next tax year). If you exercise and hold (ISO treatment), lenders may count as reserves (at discount) but not income until you sell.

Q: Can foreign nationals with stock comp get California jumbo loans?
A: Yes, via portfolio lenders. Foreign national programs require 30%–40% down, 18–24 months reserves, and passport/visa (no U.S. credit needed). Stock comp from U.S. companies counts as income/reserves same as U.S. citizens.

Q: What if my company stock is in a lockup period (pre-IPO, post-IPO blackout)?
A: Lenders exclude locked-up stock from reserves (can’t access = not liquid). After lockup expires, it counts as vested stock (at 60%–70% discount).

Q: Can I get a jumbo loan if 100% of my income is stock comp (no base salary)?
A: Difficult with conforming lenders (need 2+ years of consistent stock comp history). Portfolio lenders may approve via bank statement income or asset-based underwriting if you have large liquid assets.

Bottom Line: Stock Comp-Friendly Lenders Are Critical for Bay Area Buyers

Tech workers with stock compensation face unique jumbo approval challenges—but portfolio lenders, private banks, and stock-comp-savvy credit unions offer solutions:

1. Document vesting history (2+ years if possible) to maximize conforming approval odds.
2. Sell vested stock 2–3 months before applying to boost cash reserves and avoid large deposit scrutiny.
3. Shop portfolio lenders who count unvested RSUs as reserves, offer bank statement income, and manually underwrite.
4. Ask about asset-based programs if you have $2M+ liquid from stock sales.
5. Maximize compensating factors (high credit, low LTV, high reserves) to offset income volatility.

Compare California jumbo lenders at Browse Lenders® to find stock-comp-friendly programs. Check your credit tier to understand pricing. Run reserve scenarios to model vested stock vs. cash.

No guessing, no surprises—just transparent jumbo lending for Bay Area tech workers.