A paycheck shrinks once taxes come out, but SSI, VA disability and child support arrive untaxed. Lenders qualify everyone on gross income, so they adjust tax-free income upward to compare it on equal terms with a paycheck. That adjustment is the gross-up.
FHA's 15% and Conventional's 25%
An FHA lender grosses up non-taxable income by 15%, and Fannie Mae allows 25% on Conventional loans. In both cases the lender confirms that the income is untaxed (through an award letter, tax returns or the court order behind it) and that it's likely to continue. Income with a set end date, such as child support, has to run at least three more years from the application.
The adjustment applies only to the untaxed portion. A wage, a pension that's taxed, or the taxable part of a Social Security benefit counts at face value.
A buyer with child support
Danielle earns $3,900 a month at her job and receives $750 a month in court-ordered child support for her 9-year-old, so the support has years to run. Her income before any gross-up is $4,650.
| Program | Without gross-up | With gross-up | Extra room each month |
|---|---|---|---|
| FHA, 56.9% total limit | $4,650 × 56.9% = $2,645.85 | $4,762.50 × 56.9% = $2,709.86 | $64.01 |
| Conventional, 50% total limit | $4,650 × 50% = $2,325.00 | $4,837.50 × 50% = $2,418.75 | $93.75 |
On FHA the $750 counts as $862.50. On Conventional it counts as $937.50. The $64.01 of added FHA room carries roughly $11,000 more loan at a 5.75% rate on principal and interest alone, which can be the difference between the house she wants and the one a few streets over.
Income that usually qualifies
- SSI (Supplemental Security Income), which is never taxed
- VA disability compensation
- Social Security retirement or disability, for the share that isn't taxed
- Child support received
- Military housing and food allowances
The gross-up does the most good with a co-signer. A parent or grandparent on Social Security or SSI can sign with the buyer, stay off the title and keep living where they live now, and their grossed-up income is added to the buyer's. Their own monthly debts count as well, the same as for any non-occupant co-borrower.
Enter SSI, Social Security or other untaxed income in the co-signer calculator and it applies the gross-up automatically. Call AAA Capital Funding at 888-601-8344 and we'll confirm which of your income qualifies for it and what it adds.