How do you gross up nontaxable income?

Regular sources of income that may be non-taxable include:

Fannie Mae:

Gross-Up Factor: 25%

Must be verified as non-taxable income; supporting documentation can include award letters, policy agreements, account statements, tax returns or other documents that support non-taxable status of income.
For Social Security income (i.e., retirement income, disability benefits, survivor benefits and Supplemental Security Income), the Seller may gross up 15% of the income without obtaining additional documentation. This nontaxable income may then be grossed-up and added to qualifying income.
If a lender opts to gross-up more than 15% of Social Security income, documentation to support that the additional income is nontaxable must be included in the loan file.

The full amount of qualifying child support income may be treated as nontaxable without having to provide documentation evidencing the nontaxable status. This nontaxable income may then be grossed-up and added to qualifying income.
If the actual amount of federal and state taxes that would generally be paid by a wage earner in a similar tax bracket is more than 25% for the borrower’s nontaxable income, the lender may us that amount to develop the adjusted gross income, which should be used in calculating the borrower’s qualifying ratio.

Examples:

Qualifying Income: $1,556 (does not require additional documentation)

Freddie Mac:

Gross-Up Factor: 25%

Must be verified as non-taxable income; supporting documentation includes most recent tax return for the past year, or other documentation evidencing the income (or portion of income) is tax exempt.
For Social Security income (i.e., retirement income, disability benefits, survivor benefits and Supplemental Security Income), the Seller may gross up 15% of the income without obtaining additional documentation. For example, if the Borrower’s Social Security income is $1,000/month, the Seller can gross up $150 (i.e., 15% of $1,000) without obtaining documentation that this portion of the income is tax exempt.
If the actual amount of federal and state taxes that would generally be paid by a wage earner in a similar tax bracket is more than 25% for the borrower’s nontaxable income, the lender may us that amount to develop the adjusted gross income, which should be used in calculating the borrower’s qualifying ratio.

Examples:

$1000 + $37.50 + $1037.50 total adjusted gross income

FHA:

Gross-Up Factor: 15%

Must be verified as non-taxable income; supporting documentation includes most recent tax return for past year, as well as other supporting documentation to show that the income is non-taxable.
The percentage of Nontaxable income that may be added cannot exceed the greater of 15% or the appropriate tax rate for the income amount, based on the borrower’s tax rate for the previous year.
If the borrower is not required to file tax returns the Mortgagee may gross up Nontaxable income by 15%.
The Mortgagee cannot make any additional adjustments or allowances based on the number of the Borrower’s dependents.

Example:

$1000 + $150 = $1150 total adjusted gross income

VA:

Gross-Up Factor: 25%

Must be verified as non-taxable income; supporting documentation includes most recent tax return for past year, as well as other supporting documentation to show that the income is nontaxable.
Tax-free income may be “grossed up” for the purpose of calculating DTI only.

Example:

$1000 + $250 = $1250 total adjusted gross income

USDA:

Gross-Up Factor: 25%

Must be verified as non-taxable income; supporting documentation includes most recent tax return for past year, as well as other supporting documentation to show that the income is non-taxable.

Example: