For a Fannie Mae loan, a retired borrower receives $2,400 monthly Social Security retirement income. The file verifies that the full amount is nontaxable and that the income and tax-exempt status are likely to continue. May the lender adjust this income upward under the nontaxable-income rules?
Correct Answer
A) The income may be grossed up under the program rules that apply
A. Apply the program's supported nontaxable-income adjustment. Using the ordinary 25% adjustment, $2,400 × 25% = $600, giving $3,000 for qualification. This adjusts the qualifying figure; it does not increase the borrower's actual monthly benefit. Scope and exceptions: No withholding does not prove full tax exemption. Fannie Mae permits a limited 15% nontaxable portion of Social Security without extra tax-status documentation; treating more as nontaxable requires support. The general rule permits a higher adjustment when the specified comparable tax amount supports it. Source: Nontaxable Income — https://guide-selling.fanniemae.com/sel/b3-3.1-01/general-income-information Determination of Qualifying Income — https://guide-selling.fanniemae.com/sel/b3-3.4-15/social-security-income
Why This Is the Correct Answer
A. Apply the program's supported nontaxable-income adjustment. Using the ordinary 25% adjustment, $2,400 × 25% = $600, giving $3,000 for qualification. This adjusts the qualifying figure; it does not increase the borrower's actual monthly benefit. Scope and exceptions: No withholding does not prove full tax exemption. Fannie Mae permits a limited 15% nontaxable portion of Social Security without extra tax-status documentation; treating more as nontaxable requires support. The general rule permits a higher adjustment when the specified comparable tax amount supports it.
Why the Other Options Are Wrong
Option B: The income counts at the $2,400 figure, with no adjustment allowed
It incorrectly prohibits the permitted adjustment.
Option C: The income is not usable, as Social Security can stop at any time
Retirement benefits are not categorically unusable.
Option D: The income may be grossed up by exactly 40% on every program
There is no universal 40% factor across programs.
Exam Tip
Verify the nontaxable portion before applying the gross-up percentage.
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