What Income Counts Toward Qualifying for a Mortgage?
Social Security, pensions, retirement income and disability income all count, and so does self-employed or 1099 income, though lenders measure it differently. Income that isn't taxed can often be "grossed up" so it counts for more. Self-employed income is usually taken from your filed tax returns, after deductions. Whether it adds up to the loan you want depends on your numbers.
Last updated September 29, 2026Does Social Security, disability, or pension income count?
Yes. Social Security, pension, retirement and disability income, VA disability included, can all count as qualifying income. The lender wants to see that it's stable, and for income with an end date, Fannie Mae's guidelines ask the lender to document that it will keep coming for at least three years after closing.
Retirement or investment accounts can help even if you aren't drawing from them yet. A lender can count part of the balance as income, or you can set up a documented monthly distribution.
What is "grossing up" and how does it work?
Social Security and VA disability usually arrive with no income tax taken out, so a dollar of it goes further than a dollar of taxable pay. To even that out, lenders can count more than you actually receive. On loans that follow Fannie Mae's guidelines, the standard adjustment adds 25% of the nontaxable amount, or more if a similar wage earner's actual taxes would run higher. FHA, VA and USDA loans set their own gross-up rules. Income that's fully taxed doesn't get grossed up.
How does self-employed or 1099 income get counted?
Lenders usually look at your last two years of filed tax returns, with Schedule C, 1099s or K-1s. They count net income after write-offs, not gross revenue and not bank deposits. If your business has been open five years or more, one year of returns can be enough.
If your returns show less than you really bring in, a bank-statement (non-QM) loan qualifies you on 12 to 24 months of business deposits instead. These loans commonly carry a higher rate than standard loans, because the lender takes on more risk without tax returns.
What if my income doesn't cover the loan I want?
- It covers the loan, after any gross-up: you can move ahead on that income.
- It falls short even after gross-up or averaging: adding a co-borrower or asking for a smaller loan are the usual fixes.
- You're self-employed and your returns understate your cash flow: a bank-statement program may work, generally at a higher rate.
| Social Security, VA disability (nontaxable) | Can be grossed up; 25% is Fannie Mae's standard |
|---|---|
| Fully taxable pension or other income | Counted as is, no gross-up |
| Income with an end date | Should continue at least three years after closing (Fannie Mae) |
| Self-employed or 1099 | About two years of tax returns, net income after deductions |
| Business open five years or more | One year of returns may be enough |
| Bank-statement (non-QM) program | 12 to 24 months of business deposits, usually at a higher rate |
Related questions
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Sources
- https://selling-guide.fanniemae.com/sel/b3-3.4-15/social-security-income
- https://selling-guide.fanniemae.com/sel/b3-3.4-03/annuity-pension-or-retirement-income
- https://selling-guide.fanniemae.com/sel/b3-3.1-01/general-income-information
- https://singlefamily.fanniemae.com/media/37666/display
- https://selling-guide.fanniemae.com/sel/b3-3.4-06/employment-related-assets-qualifying-income
- https://trussfinancialgroup.com/blog/fannie-mae-self-employed-guidelines
- https://corr.pennymac.com/non-delegated-announcements/non-delegated-announcement-23-78
- https://homebuyer.com/guidelines/fannie-mae/underwriting-factors-and-documentation-for-a-self-employed-borrower-b3-3-2-01
- https://mbanc.com/blog/bank-statement-mortgage-a-non-qm-loan-for-self-employed
- https://griffinfunding.com/non-qm-mortgages/bank-statement-loans
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.