Why do underwriters average income over time? What's the rule logic?

Why do underwriters average my income over time?

You're wondering why underwriters take your income from multiple years and calculate an average instead of using your most recent pay stub. Underwriters average income over two years to measure stability and predict future earnings capacity. Lenders want confidence that the income supporting your mortgage payment will continue reliably. A single year of high earnings might reflect a bonus, overtime, or temporary situation rather than sustainable income. The two-year average smooths out fluctuations and gives a clearer picture of what you typically earn.

For W-2 employees with steady salaries, this process is straightforward since income stays consistent. For self-employed borrowers or those with variable income like commissions, the averaging helps lenders see past good months or slow periods to understand the underlying earning pattern. Underwriters typically use your tax returns from the past two years, then divide total income by 24 months. If your income shows an upward trend, some lenders will weight recent years more heavily or use different calculations. Share your tax returns and recent pay stubs with your lender, and they can walk you through how your specific income will be calculated for loan qualification.