A dollar saved is often better than a dollar earned since there are no taxes associated with it. That is, unless you have income streams that are non-taxable.
While non-taxable income is not common for most borrowers who are looking to get pre-approved for a mortgage loan, it is beneficial for qualifying purposes. If you have verifiable, non-taxable income it is likely that this income can be grossed up when determining a borrower’s ability to qualify for a mortgage.
Any non-taxable income generally gets a 25% boost for qualifying purposes. For example, if you receive child support (which is federally tax-free) in the amount of $1,000 per month that income for qualifying purposes will actually be treated as $1,250.
Sometimes income received is both taxable and non-taxable. A great example of this is social security income. For example, let’s say you receive $500 in taxable benefits and $500 in non-taxable benefits for a total of $1,000 per month. In this case, the $500 non-taxable portion would be grossed up to $625 creating a $1,125 qualifying income when adding back the taxable portion.
Some other common examples of potentially non-taxable income include alimony, VA benefits, disability income, workers’ compensation, foster care income, and more. Keep in mind that if income could be both taxable and non-taxable you will need to provide documentation to support that the income is tax free.
Grossing up income can be a powerful tool for loan-qualifying purposes. Oftentimes it can be the difference between qualifying and not qualifying or being able to obtain a larger mortgage.
If you have any questions give us a call at (760)930-0569. One of our experienced Mortgage Loan Originators would be happy to help.
