All forms of mortgages allow for grossing up certain types of nontaxable income. The reason nontaxable income can be grossed up is because typically mortgage loans go by a borrower’s gross income. The amount that nontaxable income can be grossed up depends on the loan type and sometimes the tax rate that the borrower is in. If the borrower(s) do not have to file a tax return, then the standard is grossing up income by 25%. The grossed up figure is determined by taking the income amount and multiplying it by 125% or 1.25.
Examples of types of income that all or portions can be grossed up are:
- Housing allowance for pastors & reverends. Check out our blog on using the pastoral housing allowance to qualify for a mortgage
- Car allowance paid for a period of 2 years or more (must have documentation of receipt)
- Social security (if not taxed on the tax returns)
- Disability income like social security, VA, or other forms of disability income expected to continue 3 + years
- Nontaxable pension
- Railroad retirement income
- Military Housing, clothing, and rations allowances
- Foster Care Income
- Indian Act Exemption
- Child support
Often knowing when the types of income that can be grossed up will be the difference in a loan denial or a loan approval. We are actually contacted from people all over the country because of our knowledge of how to calculate income sources such as pastoral, military, or other income sources that may be nontaxable but usable income.