Question: How is tax-exempt income treated on a loan application?

Answer: Lenders have a wonderful expression which explains how non-taxable payments are handled -- they are "grossed up."

This means that if you take in $1,000 in tax-exempt payments and state and local taxes are 17 percent, it would take an income of $1,204.82 to have a $1,000 income after taxes. The lender would compute the application on the basis of the $1,204 figure.

See lenders for specific practices.