Home Base: Real Estate for First Responder Families

Part 2: Overtime and Your Home Loan. What Counts, and What Shouldn't.

This is the second post in a series written for firefighters, law enforcement, EMS, nurses, military families, and everyone else whose work doesn't fit a nine to five. Part one was about the life itself. This one gets into the practical side: how the paycheck that comes with that life gets read by a mortgage lender.

If your paycheck swings with overtime, this first one is for you.

I'll start with why I'm the one writing it. My husband is a Fire Captain and my son works with CAL FIRE. I know exactly what a peak season paycheck looks like, and I know what the slow months look like too. Before real estate, I worked in mortgage lending, so I've also seen how those paychecks get read on the other side of the desk. This post is where those two things meet.

How lenders actually count overtime

Lenders don't just look at your most recent pay stub. To use overtime income to qualify for a conventional loan, they generally want to see a two year history of it, and they average it over that period.

Here's the simple math. If you earned $20,000 in total overtime across the last two years, the lender averages that to roughly $833 a month of qualifying income. It doesn't matter that last month's check was huge or that this month's was quiet. The average is the number.

A few wrinkles worth knowing:

If your overtime is trending down from one year to the next, the lender may use the lower year's figure or decline to count it at all. Your employer will usually need to confirm that the overtime is likely to continue. And seasonal swings, which are completely normal in fire service, are understood by lenders who know the industry, but the two year average is still the rule.

None of this is a problem. It's just how the system reads variable income, and knowing it ahead of time means no surprises during underwriting.

The part that matters more

Just because overtime can count doesn't mean you should lean on it.

A lender's job is to calculate the maximum you can borrow. Your job is to decide what you can comfortably live with. Those are two different numbers, and the gap between them is where good decisions get made.

Overtime changes. Staffing changes, seasons change, bodies get older, priorities shift. If the mortgage only works when the OT checks are coming in, then a quiet winter becomes something you feel at the kitchen table.

My advice, as an agent and as someone who has lived on a fire schedule for a long time: use the overtime to qualify if it helps you get where you want to go, but build your monthly budget on base pay. Let the overtime pay down principal faster, fund the trip, or build the savings account. Let it stay a bonus instead of becoming a requirement.

One more thing worth knowing

If you're a first responder, medical professional, teacher, or military family, ask me about Homes for Heroes when we talk. It's a program I'm part of that gives real money back at closing to the people who do these jobs. It's not a gimmick, and given my household, it's personal. It takes about two minutes to explain and it's worth those two minutes.

https://www.homesforheroes.com/affiliate/jennifer-kleist

The bottom line

Overtime can absolutely help you qualify for more home. Whether it should is a conversation worth having before you start touring houses. If you want to run your actual numbers, base pay and overtime side by side, I'm happy to help you think it through. No pressure, just math.

Previously in the series: Part 1, Tales from a Fire Wife & Mom (of Over 20 Years). Next up: [placeholder for part 3 topic]

Jen Kleist, Realtor® DRE #02228818