Question 1

What is income gross-up and why does it matter?

Accepted Answer

Gross-up is an adjustment lenders apply to non-taxable income to reflect its pre-tax equivalent, since a non-taxable dollar is worth more than a taxable dollar of the same amount. It directly increases your qualifying income, which can mean the difference between qualifying for a home and not.

Question 2

Why does the gross-up factor differ between FHA and conventional or VA loans?

Accepted Answer

Each program sets its own guideline. FHA caps the gross-up at 15%. Fannie Mae, Freddie Mac (conventional), and VA guidelines all allow 25%. Using the wrong factor either shortchanges your qualifying income or overstates it in a way that creates a condition during underwriting.

Question 3

Why does Social Security Retirement have a taxable portion, but VA disability doesn't?

Accepted Answer

Social Security retirement benefits can be partially taxable depending on your total household income under IRS rules, so only the non-taxable share gets grossed up. VA disability compensation, SSDI, and SSI are all fully non-taxable by law, so the entire benefit gets grossed up.

Question 4

What documentation do I need to use this income?

Accepted Answer

An award letter (SSI, SSDI, or VA Award Letter/Certificate of Eligibility) showing the current monthly amount, or an SSA-1099 plus recent bank statements confirming receipt. Pending applications don't count as qualifying income, only benefits actually being received.

Question 5

Can I combine this income with other income sources?

Accepted Answer

Yes. Social Security, SSDI, SSI, and VA disability can all be combined with employment income, pension income, rental income, or any other qualifying source. Each is documented and grossed up separately, then added together for total qualifying income.

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