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Vice-President, National Sales
Jason Provencher Phone: 403.472.7340 Toll Free: 1.888.472.7340 Fax: 403.718.3042 jprovencher@bridgewaterbank.ca
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British Columbia
Yvonne Futter Phone: 604.506.7114 Toll Free: 1.866.867.1777 Fax: 403.718.3042 yfutter@bridgewaterbank.ca
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Edmonton, central & northern Alberta
Laura Cook Phone: 587.341.4160 Toll Free: 1.844.430.4846 lcook@bridgewaterbank.ca
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Select a location from above to display BDMs
Contact a BDM
Vice-President, National Sales
Jason Provencher
Phone: 403.472.7340
Toll Free: 1.888.472.7340
Fax: 403.718.3042
jprovencher@bridgewaterbank.ca
Headshot of Jason Provencher
British Columbia
Yvonne Futter
Phone: 604.506.7114
Toll Free: 1.866.867.1777
Fax: 403.718.3042
yfutter@bridgewaterbank.ca
Headshot of Yvonne Futter
Edmonton, central & northern Alberta
Laura Cook
Phone: 587.341.4160
Toll Free: 1.844.430.4846
lcook@bridgewaterbank.ca
Headshot of Laura Cook

How to Increase Your Clients’ Income Using Add-back and Gross-up Calculation Formulas

Gross-ups and add-backs and adjustable rates… OH MY! There are so many tools available to help get a deal done, it can be hard to keep track. Don’t fret, let us dig into a few you can use to help your clients see an approval.

Gross-ups and add-backs can both be used to increase certain clients’ income for mortgage qualification purposes. Let’s look at how you can make use of these on a deal.

Gross-ups: Calculation Formula and Examples

Let’s look at gross-ups first. Non-taxable and non-traditional income can be grossed up to help qualify your client for a mortgage. For your self-employed clients, a standard 15% gross-up can be calculated using their 2-year income average (line 150 from their NOA). Lenders understand a self-employed clients’ income tends to be higher than what is reported on a tax return.

Be sure to disclose if the income average amount includes items other than BFS income – such as interest, RSP income and rental income – as these items cannot be grossed up.

Gross Ups: Calculation Formula and Examples

Gross-ups are also commonly used in the case of non-taxable income earners. This includes clients who are:

  • Foster parents
  • Ministry workers
  • Non-taxable pension earners
  • Indian Act Exempt

The standard rule is:

  • Borrowers with non-taxable income less than $30,000 are eligible to have their entire non-taxable income grossed up by 25%.
  • Borrowers with non-taxable income of $30,000 or more are eligible to have their entire non-taxable income grossed up by 35%.

A simple gross-up mortgage example:

Mrs. Jones takes care of two foster children and receives $36,000 a year tax-free.

Borrower(s) non-taxable income X gross-up factor = grossed-up income

$36,000 X 1.35% = $48,600 (total grossed-up income)


For non-taxable income earners, gross-ups are where it’s at. Just be sure that your clients are filing a tax return regardless of whether their earnings are non-taxable.

Add-backs Explained

For other self-employed clients, sometimes add-backs are the better way to go.

Review your client’s tax return along with their NOA to determine what is business-related income. You can extract certain expenses and add them back into line 150 (instead of grossing up). The benefit of add-backs is that in most cases, the resulting income will be higher than a straight 15% gross-up.

Add-backs can be tough to decipher and it’s usually best to leave it to your underwriter to determine what is acceptable. No two businesses are the same, and each company needs to be reviewed individually.

We created a helpful infographic to aid you in understanding how to use add-backs.

  • Red light means stop. These items are generally not acceptable to claim as an add-back.
  • Yellow light means proceed with caution. These items will be considered by your underwriter on a case-by-case basis. Consult your underwriter if need be; they’re the experts and they’re happy to help.
  • Green light means go! These items are acceptable and approved by lenders.
add backs infographic
Here’s a helpful infographic breaking down add backs and what’s not acceptable, what is considered case-by-case, and what gets a green light go-ahead.

 

When in doubt, let us help you figure it out. Providing your underwriter with the clients’ statement of business activities, T1 summary and accountant-prepared company financials with your submission will take the guesswork out of what income can be used for qualifying and will also allow for a smooth process and reliable approval.

We hope this information helps clarify these options for your next deal. If there are other mortgage terms you’d like to see explored, please leave us a comment. And make it a tough one, we love a good challenge.

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