How Much Can You Gross up VA Disability Income?

You can gross up your VA disability income by 25% since it is non-taxable. The main reason behind it is the 25% average tax amount that the citizens of America pay to the state and the federal organization.

Grossing up your income is a crucial part of getting a loan. If you are applying for a VA disability loan, the non-taxable part makes it even easier.

You should be aware of a few things if you are a veteran considering taking a big step, like getting a VA loan for a home purchase or something. The loan here is directly connected to your VA disability income. Let’s help you get to know everything relevant.

Understanding Grossing Up of VA Disability Income

You probably already know that grossing up is a cash increase in a payment that helps you pay taxes quickly. The increasing amount is equal to the taxable amount here. So, when you get a gross up to your income, your post-tax amount remains as much as a pre-tax amount without the gross up.

Now, regarding a non-taxable income, such as VA disability compensation, the gross-up is your entire bonus amount. And that helps the most when you are looking to get a loan. Let’s discuss that next.

Steps to Receive a VA Loan

When getting a VA loan, you must be eligible first and foremost. A Certificate of Eligibility (COE) is necessary here. The lender will also look into your income and credits to determine whether they will lend a loan.

VA Disability Loan Requirements from VA

Any of the following points makes you eligible for a VA loan-

• You actively served consecutively 90 days during wartime or 181 days during peacetime.
• You served 90 days under Title 32 orders or six years in the Reserves or National Guard.
• You have a service-connected disability, or your spouse died while serving.

Of course, there are other points that can still make you eligible even if you do not match the ones above. Most of them are related to your discharge type. Visit the VA Loan Eligibility Requirement page for more information.

If you are eligible, you need to contact a VA lender and obtain your certificate of eligibility. The lender can help you get the COE. You can also apply for the COE from VA’s official site. Afterward, you must finish the loan application and deliver any required paperwork.

VA Disability Loan Requirements from Lenders

The lenders may have different requirements for a VA loan. These are usually the same as lending any other loans. They may look at your income, grossing up, credit, residual income, and IRS letter.

• Most lenders need you to have a 620 mortgage credit score for a loan.
• You may need a certain amount of income for a loan. Lenders usually multiply your non-taxable income by 1.25, and the outcome is what they use. So, if your non-taxable income here is $1,500, they will use $1,875 instead.
• You need to have a certain amount of residual income after spending your income on your major expenses. This residual income should be high enough for general family needs.
• Finally, the lenders will look at your debt-to-income (DTI) ratio, which usually needs to be 45% or under. We have explained it in the next section. 

Brief Explanation of the DTI Ratio

As its name suggests, the DTI ratio is between the monthly debt and income. Lenders often require your DTI to be less than 40-45%. A lower DTI is better in this case. Gross up of your VA disability income comes in handy here. Let us explain.

Let’s say you have a monthly income of $2,000 with a monthly debt of $860. In that case, your DTI is (860×100)/2000 = 43%. Now, suppose your lender, unfortunately, requires a DTI below 41%.

With a 25% gross up of your income, it becomes $2,500. Repeating the calculation gives you a DTI of 34.4% now. As you can see, the gross-up allows you to get the loan quickly, which would not be possible otherwise.

Here, we used a 25% gross-up amount because you can gross up your VA disability income up to 25%. Meanwhile, your monthly VA disability income may depend on your VA rating.

Final Note

While you can gross up your VA disability income to 25% to get a VA loan with ease, it is still not smooth sailing since other criteria are there too. Before everything, you must be eligible by the requirements of the VA. With the aid of VA Disability Coach, you can review your eligibility without facing any hassles.