The A&D Professional's Home Buying Playbook: Managing RSUs and Lumpy Income for a Down Payment

For A&D professionals navigating the 9/80 schedule at a major prime, the path to homeownership often presents a unique financial puzzle.

You may have a strong income, excellent credit, and a stable career. Yet, in high-cost housing markets like San Diego or Los Angeles, the challenge is often liquidity… specifically, having enough cash on hand for a down payment while managing high rent and retirement contributions.

For many in the Aerospace & Defense sector, a significant portion of compensation comes in the form of lumpy income, Restricted Stock Units (RSUs) and annual performance bonuses.

While these are valuable assets, they function differently than a bi-weekly paycheck. Without a proactive plan, relying on this income for a real estate transaction can lead to lending challenges or unexpected tax bills.

Here is a framework for navigating these complexities.

Managing Concentration Risk: The House Fund Dilemma

A common challenge for professionals with equity compensation is viewing unvested RSUs as a stable savings account for a future down payment. While a rising stock price can accelerate savings, it also introduces concentration risk.

If a specific company's stock price declines shortly before a planned home purchase, the value of that potential down payment drops with it.

A Strategy to Consider: Liquidity First

To mitigate the risk of market volatility impacting a short-term goal like buying a home in 12-24 months, many financial planners suggest separating investment assets from savings goals.

• Concept: Rather than holding vested shares and hoping for continued growth, some professionals choose to sell shares upon vesting.
• Action: Proceeds are then moved into stable, liquid vehicles like High-Yield Savings Accounts (HYSA) or Treasury Bills.
• The Goal: This approach prioritizes capital preservation over potential market growth, aiming to keep the cash available when escrow opens.

Navigating Mortgage Qualification with RSUs

While RSUs are real income, mortgage lenders view them differently than base salary. Underwriters generally look for stability and continuity.

If you intend to use RSU income to qualify for a larger loan, be aware of common lending guidelines such as those from Fannie Mae or Freddie Mac:

• History of Receipt: Lenders often look for a two-year history of receiving RSU income from your current employer.
• Continuance: Underwriters may require proof that the RSU income is likely to continue for at least three years into the future.
• The Potential Hurdle: If you recently changed jobs (e.g., moved from a legacy prime to a space-tech startup), your RSU clock with the new employer may have reset. Even if you have substantial unvested grants, a lender might not count that as qualifying income until a longer vesting history is established.

Pro Tip: Early in your home search, consider consulting with a mortgage lender who specializes in complex compensation packages to review your specific qualifying income.

The Total Tax Gap

Understanding tax withholding on equity compensation is critical for cash flow planning.

When RSUs vest or bonuses are paid, companies are typically required to withhold federal taxes at a statutory supplemental rate, often lower than the top marginal tax brackets for high earners.

The Potential Issue:

If your actual marginal tax bracket is higher than the statutory withholding rate, you may be under-withheld on that income.

The Scenario: An employee receives a net bonus check and uses the full amount for a down payment. However, when filing their tax return the following April, they discover they owe additional taxes on that bonus because the withholding was insufficient.

Planning Consideration:

It is often prudent to estimate your total tax liability with a CPA or financial planner before spending a bonus or RSU windfall. Many professionals set aside an extra cash reserve to cover potential tax bills in April.

The Mortgage Recast Option

Sometimes, the right home appears on the market before a major vesting event.

Prospective buyers might assume they must wait for the cash to land before buying. However, some lenders offer a feature called a mortgage recast.

How it generally works:

1. The buyer purchases the home with the funds currently available (resulting in a higher initial loan balance).
2. When the RSU/Bonus cash becomes available later, the buyer makes a large lump-sum principal payment.
3. The lender recasts (re-amortizes) the remaining loan balance over the remaining term, reducing the monthly payment.

Note: Not all loans are eligible for recasting. This is a specific feature you must discuss with your loan officer.

Summary

Purchasing a home in a high-cost market requires careful coordination of income, assets, and tax planning. By viewing your RSUs and bonuses as part of a comprehensive financial system, rather than just extra money, you can better position yourself to achieve your housing goals.

If you need assistance modeling your cash flow or understanding how equity compensation fits into your broader financial plan, this is a core component of our Launch Pad planning process.