How do you calculate bonus income if the bonus income increased over the last two years?

The process of calculating bonus income requires a clear understanding of consistency and trends over time. Averaging the last two years of bonus income is a sound method because it provides a more stable and realistic picture of a borrower's financial health. By averaging, you take into account any fluctuations in bonus payments that might occur due to varying performance levels, ensuring that you don't overly rely on a particularly high bonus from just one year, which may not be repeated.

This approach also enables you to provide assurance of future income based on documented past performance. Lenders look for reliable indicators of income stability, and averaging the bonuses helps capture that trend. It reflects a more comprehensive view of the borrower's earning potential, as it mitigates the impact of any outlier earnings.

While other methods may be quick, they can lead to an inaccurate representation of a borrower’s financial situation. Therefore, in scenarios where bonuses have increased over the previous years, averaging the two years not only strengthens the case for lending but also aligns with the standard practices within the lending industry.