Nontaxable Military Income and Mortgage Qualifying: What Loan Officers Should Check
VA disability, BAH, BAS, combat pay, and tax-free pension income may be eligible for a gross-up when calculating qualifying income — but the percentage depends on the applicable agency/investor guideline and your actual tax situation, not a fixed rule.
If you're a veteran or active-duty service member with nontaxable income, ask whether your loan officer evaluated every eligible source for a potential gross-up. VA underwriting relies primarily on residual income and actual documented income, and any gross-up is applied according to the applicable agency or investor guideline and your specific tax circumstances — it is not automatic and not the same for every file.
The honest version
Underwriting guidelines may permit a lender to adjust documented nontaxable income upward for qualifying purposes. The percentage used, and whether it applies at all, depends on the specific agency/investor guideline in effect and the borrower's documented tax situation. Any illustrative percentage you see is an assumption for education only, not a guaranteed underwriting outcome.
Income sources to ask about
- VA disability compensation (any rating)
- BAH — Basic Allowance for Housing
- BAS — Basic Allowance for Subsistence
- Combat pay, hazardous duty pay, hostile fire pay
- Military retirement pay in tax-exempt states
- SSDI and other nontaxable federal benefits
- Nontaxable child support and alimony (post-2018)
Some loan officers only evaluate VA disability for a potential gross-up and don't check whether BAH, BAS, or combat pay might also qualify under the applicable guideline. Whether any of these apply, and at what percentage, is determined case by case.
What to do next
Ask your loan officer which of your nontaxable income sources were reviewed for a potential gross-up, what guideline they applied, and how that affected your qualifying income and residual income calculation. Get the answer in writing before you rely on any pre-approval number.
About the author
Content reviewed by licensed mortgage professionals at Bolt Home Loans LLC, NMLS #2784913.