Yes, Social Security, VA disability, pensions and other benefit income can qualify you for a mortgage, and if part of it isn't taxed, the lender can usually "gross it up" so it's compared fairly with a paycheck. For FHA, HUD lets the lender add up to the greater of 15% or your actual tax rate to the nontaxable portion. For Fannie Mae conventional loans, the standard adjustment is 25% of the nontaxable portion, and Fannie lets the lender treat 15% of Social Security as nontaxable without extra documentation. You'll need the award letter, proof the money actually arrives, and, for some benefits, proof it'll continue for at least three years.
Below I'll walk through the documents for each kind of benefit, how continuance works, exactly how the gross-up is figured under each program, and the mix-ups I see most.
You don't need a job for this income to be real. You need the letters.
The award letter shows what's supposed to be paid. Bank statements show what actually lands. The two often differ, and the reason matters. Medicare premiums are commonly deducted from Social Security before the deposit, so the gross benefit on the letter is higher than what hits your account. Federal tax withholding and pension health premiums do the same. The underwriter typically qualifies on the gross benefit when the letter explains the difference.
When the deposit is lower for a reason the letter doesn't explain, like a garnishment or an overpayment recovery, the underwriter will ask about it and may use the lower amount. FHA uses the most recent benefit amount received.
This matters most for benefits paid for a child. A parent who receives Social Security as a child's representative payee can often use it, but if the benefit ends when the child reaches a certain age within three years, it won't count. Bring the award letter naming you as payee and the child's birth date.
Here's the logic. A wage earner is qualified on gross pay, before taxes, but takes home less. If you receive nontaxable income, you keep all of it. Comparing the two at face value would make your income look smaller than it really is, so the guides let the lender increase the nontaxable portion before figuring your debt-to-income ratio.
HUD's list of nontaxable income includes some portion of Social Security, some federal and state government retirement income, Railroad Retirement benefits, certain disability and public assistance payments, child support, Section 8 Housing Choice Vouchers and military allowances. The lender can add the continuing tax savings, capped at the greater of 15% or your tax rate for the previous year. If you weren't required to file a return last year, the lender can use 15%. No extra adjustment is allowed for dependents (HUD 4000.1 II.A.4.c.xii(P)).
Once income is verified as nontaxable and likely to stay that way, the lender adds 25% of the nontaxable amount, or more if the actual taxes a wage earner in a similar bracket would pay are higher (B3-3.1-01). For Social Security, Fannie lets the lender treat 15% of the benefit as nontaxable with no further documentation. Grossing up more than 15% requires documentation of the nontaxable amount, usually your tax return (B3-3.4-15).
Depending on your total income, part of your Social Security may be taxable under federal law. Your tax return shows how much. Only the nontaxable part is grossed up. Someone with Social Security as their only income may have most or all of it nontaxable. Someone who also has a pension and investment income may have more of it taxed. Same award letter, different qualifying income.
DU's validation service can verify Social Security income and issue its own documentation list, which may differ from the manual requirements. We don't add our own overlays on benefit income. The agency rules and findings decide what's used.
Many retirees qualify on two or three streams together. Social Security plus a small pension means two letters, two deposits, an SSA-1099 and a 1099-R. The underwriter counts each one, grosses up only the part that's nontaxable under the program's rule, and adds them. If you also take regular withdrawals from an IRA or 401(k), that can count too, but the account has to support the withdrawals long enough to meet the continuance rule, and Fannie Mae asks the lender to look harder when an account is the main source of income.
One more point people ask about: the lender needs these documents precisely because the income is being used to qualify. Nontaxable doesn't mean undocumented.
Three separate benefits often get mixed up:
You can have one, two or all three. Each has its own paper.
This example is made up to show how the rules apply.
Gloria is 67, retired in Arlington, and buying a smaller home. She gets Social Security on her own work record and a small pension. Her tax return shows only part of her Social Security was taxable. On a Fannie Mae loan, her lender could treat 15% of the Social Security as nontaxable with no extra paperwork and gross that up by 25%, or use her return to document a larger nontaxable portion. The pension is taxable, so it's used as is. Her deposits are lower than her award letter because Medicare is withheld, and the letter explains it. Whether she qualifies still depends on her debts, credit and the rest of the file.
Living on Social Security, a pension or VA benefits and wondering what you can afford? Send me your award letters and last tax return, and I'll show you what an underwriter would count, including any gross-up. Book a call, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026