When calculating a loan applicant's stable monthly income, which income type may be grossed up by the underwriter?

When calculating a loan applicant's stable monthly income, certain nontaxable income can be grossed up by the underwriter. This is because nontaxable income, such as certain Social Security benefits or child support, is not subject to income tax, making it effectively larger in terms of borrowing capacity than taxable income. Underwriters sometimes gross up nontaxable income to reflect its true value when assessing an applicant's ability to repay a loan.

Understanding this concept is essential for accurately determining the financial profile of a borrower. Grossing up these types of income allows mortgage lenders to consider the full scope of an applicant's financial resources, which can positively impact their qualification for a mortgage. Other types of income, like taxable income or employment bonuses, typically do not get grossed up because they are already counted against tax liabilities, thus reflecting the actual financial situation of the borrower more accurately.