Mortgage Loan Originators (MLO) Federal Laws Practice Test

The option stating that you can gross up all non-taxable income if it is verified and likely to continue for three years is correct because grossing up non-taxable income is a common practice in the mortgage lending process. When a borrower receives income such as child support, which is considered non-taxable, lenders often gross up this amount to better reflect the borrower's actual financial situation.

In this case, if the child support payments are documented, verified, and there is a reasonable expectation that they will continue for at least three years, the lender can add a percentage to the income to account for the fact that it is not subject to taxation. This method provides a more accurate picture of the borrower’s financial capacity to repay a mortgage.

When assessing income, it is essential to ensure that all income sources are reliable and sustainable, which is why the requirement for verification and a continuing timeframe is vital for grossing up non-taxable incomes such as child support. This approach helps lenders make informed and responsible lending decisions.