Blueprint

Grossing up income

IncomeXpert supports income “gross-up” based on agency guidelines. This adjustment is used because mortgage qualification is based on gross income, while some income types are non-taxable and reported as net.

 

Common Non-Taxable Incomes Eligible for Gross-Up

Child Support

Alimony

Social Security Income
Military Housing and Substance

VA Benefits

401K / Pension Income

Or any income that can be documented as non taxable >

 

Standard Gross-Up Rates by Agency

Agency Gross-Up % Reference

Fannie Mae 25% B3-3.1-01

Freddie Mac 25% 5305.2

FHA 15% 4000.1 II.A.4(P)

VA 25% Handbook Chapter 4, Section 9

USDA 25% HB-1 3555.1, Chapter 9

 

Special Case: Social Security (SS) Income

IRS Regulations state a maximum of 85% of SS income. This means 15% is always non-taxable and can be grossed up.

 

Here is the full math example:

Find the Non-Taxable Portion:

SS Income × 15%

Example: $1,000 × 0.15 = $150

 

Apply Gross-Up Rate:

$150 × 25% = $37.50

 

Final Income:

$1,000 + $37.50 = $1,037.50


IncomeXpert Shortcut Method

Rather than multiple steps, use:

 

Formula: SS Income × 3.75% = Gross-Up Amount

 

Example:

$1,000 × 3.75% = $37.50

Final Income = $1,000 + $37.50 = $1,037.50

IMPORTANT since FHA has a 15% gross up % the “short cut” is changed to 2.25% to achieve the same result

 

This shortcut mirrors the Fannie/Freddie math example in their guidelines and is built into our tool when you select NO on the “taxed” question for Social Security or Disability.

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