Nontaxable Income and Qualification

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Fannie Mae’s income guide describes adding 25% of verified nontaxable income when that income and its tax-exempt status are likely to continue. This qualifying adjustment is not extra cash received.

Fictional monthly inputs: $4,000 taxable gross income and $1,200 nontaxable income. Assume the lender has verified eligibility, documentation and continuance, and uses the guide’s 25% method.

Add $1,200 × 25% = $300. Adjusted qualifying income is $4,000 + $1,200 + $300 = $5,500.

With $2,200 of confirmed monthly obligations, including housing, the ratio is $2,200 ÷ $5,500 = 40%. Without the adjustment, $2,200 ÷ $5,200 is approximately 42.31%.

Multiplying all $5,200 by 1.25 would incorrectly produce $6,500 income and approximately 33.85%. The taxable portion receives no addition.

The $300 adjustment creates neither a deposit nor a tax deduction. Build the spending budget from actual take-home receipts and expenses.

Ask the lender to identify the nontaxable portion and adjustment used. The guide permits a different adjustment when supported by higher comparable taxes. These calculations do not establish approval or affordability.