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How to calculate social security income

Borrowers who have contributed to the US Government Social Security program may qualify for retirement, disability, or survivors benefits.  The contributions for this program are collected by your employer’s payroll provider, or if the borrower is self-employed, it is collected via the 1040 tax forms along with other federal taxes.

When a borrower is using social security retirement benefits the underwriter typically follows these steps:

First, the underwriter confirms receipt of the retirement income to the borrower using the award letter, personal tax returns, 1099 R statements, or bank account statements.

Second, the underwriter calculates the monthly amount. This process is pretty straightforward since the social security amount is generally a fixed payment and once awarded, the borrower receives the payments until death.

Third, the underwriter may have an option to gross up the amount awarded by the social security administration.  Per underwriting guidelines if the social security income is not taxed, it can be grossed up. In the majority of cases, social security income is not taxed. The reason it can be grossed up between 15-25% is because mortgage underwriting calculations assume that all income is taxed.  Grossing up allows incomes documented as tax free to add back the taxed amount. 

For example, on a conforming loan if a borrower’s social security award letter states the monthly benefit is $1,000, 25% or $250 can be added to the amount to qualify. Thus the qualifying income is $1,250 per month.

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