How do you calculate bonus income if the bonus income reduced in the last two years?

The approach to calculating bonus income when there has been a reduction over the last two years involves more than just taking the most recent year's bonus amount. The rationale for calculating bonus income correctly is to ensure that any future lending decision is based on a realistic assessment of the borrower's income stability.

Using only last year's bonus amount without examining the trend over time does not provide a comprehensive view of the bonus income's reliability. Additionally, relying solely on the most recent figures assumes that the reduction trend could be reversed without any supporting evidence, which can mislead lenders about the borrower's financial situation.

What makes averaging the last two years of bonuses a prudent choice is that it accounts for the fluctuation in bonus income while still recognizing that bonuses can vary year to year. This method allows for a calculated and balanced amount that reflects the borrower's recent income history, making it a reasonable and equitable way to assess any potential bonus income that could contribute to total qualifying income.

This strategy is important because it not only considers historical data but also obliges the borrower or the lender to discuss the likelihood of future bonuses. Thus, employing an average calculation over the past years establishes a sound basis for understanding the borrower's income potential going forward.