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We are a small creditor and do not have to follow Appendix Q. We have some borrowers that receive Nontaxable income like social security income or housing allowance(minister). Currently we do not gross up the non-taxable income on bank level loans for ATR. If we start grossing up the income we know that we have to be consistent with all consumer loans (real estate loans and non-real estate loans).
Our question is what is the best way to do this? What percent should we use to gross up – 15%, 25% or do we need to go by the borrower’s tax rate? We know we would need to document the file per ATR for real estate secured loans but what if we have a consumer auto loan for $10,000 and the borrower’s income is social security? We typically do not request tax returns for an auto loan as long as we have the SS Rewards letter but in order document the file for grossing up the income would we need to have the tax return or would the SS reward letter work?
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