Include Spouse's Income or No?

[Caardvark]

I've not seen anything definitive on these forums whether or not to include spouse's income when submitting CC apps or for CLI increases. The reason I ask is that our mortgage (in my name only) appears on my credit reports as $3500 p/month (although this number includes the escrowed taxes and insurance).

My income is $150K and I wonder if a $3500 mortgage payment could result in lenders being concerned about my debt to income ratio. However, my wife makes about $100K and we pool our income (I get the shallow end) and her income contributes to the mortgage. So, my question is whether I even need to be concerned and if so, what's the best way to manage it?

Thanks

[atst2000]

As long as it doesn't say *Individual* income, then yes include it.

Rule of thumb if your 21 or over always do it unless it states otherwise.

[Caardvark]

I'm wondering if there's any risk to revising my income upward $100K. While it would be accurate, I wonder if it will trigger concern.

[iced]

I never include my spouse's income on applications, and she never includes mine.

The mortgage payment is high, even at $250,000 income, but also pretty common. People around here indebt themselves up their eyeballs buying as much condo as their paychecks will possibly allow them. I don't think banks will be too worried, and honestly, after a certain threshold any extra income being reported has diminishing returns. 

Some banks are just not going to give you a $50,000 SL even if you have reported a $1 million income, and other banks will give you a $30,000 SL regardless of if your reported income is $100,000 or $300,000.

In short, the risk in reporting it is pretty low, but so is the return.

[Caardvark]

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@iced wrote:

The mortgage payment is high, even at $250,000 income

<17% of gross income (inclusive of property taxes and insurance) is high?

[Anonymous]

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@Caardvark wrote:

I've not seen anything definitive on these forums whether or not to include spouse's income when submitting CC apps or for CLI increases. The reason I ask is that our mortgage (in my name only) appears on my credit reports as $3500 p/month (although this number includes the escrowed taxes and insurance).

My income is $150K and I wonder if a $3500 mortgage payment could result in lenders being concerned about my debt to income ratio. However, my wife makes about $100K and we pool our income (I get the shallow end) and her income contributes to the mortgage. So, my question is whether I even need to be concerned and if so, what's the best way to manage it?

Thanks

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The CFPB's Regulation Z, which implements the CARD and Truth in Lending Acts, states that as long as an applicant is over the age of 21 they can include household income to which they have a "reasonable expectation of access."  In practice it becomes a bit muddy; credit unions wouldn't allow you to use combined income unless both spouses/partners are members of the credit union but most credit card issuers will not object to combined incomes. 

The regulation previously stated that a lender could only consider an applicant's "independent" ability to repay but it was changed in 2013 to enable spouses/partners who do not work outside of the home (i.e. no "official" income) to have access to credit.

[mmmlive1999]

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@Caardvark wrote:

I've not seen anything definitive on these forums whether or not to include spouse's income when submitting CC apps or for CLI increases. The reason I ask is that our mortgage (in my name only) appears on my credit reports as $3500 p/month (although this number includes the escrowed taxes and insurance).

My income is $150K and I wonder if a $3500 mortgage payment could result in lenders being concerned about my debt to income ratio. However, my wife makes about $100K and we pool our income (I get the shallow end) and her income contributes to the mortgage. So, my question is whether I even need to be concerned and if so, what's the best way to manage it?

Thanks

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Yes, include spouse. They are typically looking for "household income" unless stated otherwise.  

[iced]

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@Caardvark wrote:

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@iced wrote:

The mortgage payment is high, even at $250,000 income

<17% of gross income (inclusive of property taxes and insurance) is high?

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Assuming a typical purchase of 20% down, $3500/month on a 30 year works out to around a $500,000 mortgage (P&I) including property taxes, give or take a few hundred depending on interest rate and local tax rate. The old rule of thumb for reasonable mortgages was to not borrow more than 2x to 2.5x annual income, which puts that amount on the high end of things. If you're going with a 15 year mortgage (also smart because the interest is much lower), then the amount borrowed is less, and the monthly cost is a little more justified because it's for such a shorter period of time. In my experience though, very, very few people take the 15 year option for whatever reason.

I'm in a similar situation to you - my wife and I combine for about $250,000 gross income per year. I have calculated that our upper bound of affordability is about $250,000 (1x income), and right now we have a $180,000 mortgage with P&I+tax payment each month of $1,000. We could go a little higher, perhaps as high as $300,000, but no way we'd be able to cover $3,500/month and still save anything reasonable for retirement.

The problem is that word: gross. The IRS looks at it. Banks look at it. It's also a pretty meaningless number. We may gross $250,000/year, but after taxes, deductions and savings-related withholdings, we net around $80,000-$100,000/year (yes, our take-home really is about 1/3rd of our gross). A $3500 mortgage would be about half our take-home each month, and that's a lot to spend on housing.

Again, it's common for households with similar incomes to go with larger mortgages in lieu of savings or investments. I'm not saying doing that is good or bad (being house rich can be very bad, but in a few markets can also outgrow equities), but putting the banker numbers aside a moment, being hit with a $3500 monthly payment is a significant chunk of your take-home unless you are putting only minimal amounts into retirement savings. This is getting a bit OT, though there are some threads over in Personal Finance that cover this topic in depth.

[CreditCuriosity]

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@iced wrote:

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Assuming a typical purchase of 20% down, $3500/month on a 30 year works out to around a $500,000 mortgage (P&I) including property taxes, give or take a few hundred depending on interest rate and local tax rate. The old rule of thumb for reasonable mortgages was to not borrow more than 2x to 2.5x annual income, which puts that amount on the high end of things. If you're going with a 15 year mortgage (also smart because the interest is much lower), then the amount borrowed is less, and the monthly cost is a little more justified because it's for such a shorter period of time. In my experience though, very, very few people take the 15 year option for whatever reason.

I'm in a similar situation to you - my wife and I combine for about $250,000 gross income per year. I have calculated that our upper bound of affordability is about $250,000 (1x income), and right now we have a $180,000 mortgage with P&I+tax payment each month of $1,000. We could go a little higher, perhaps as high as $300,000, but no way we'd be able to cover $3,500/month and still save anything reasonable for retirement.

The problem is that word: gross. The IRS looks at it. Banks look at it. It's also a pretty meaningless number. We may gross $250,000/year, but after taxes, deductions and savings-related withholdings, we net around $80,000-$100,000/year (yes, our take-home really is about 1/3rd of our gross). A $3500 mortgage would be about half our take-home each month, and that's a lot to spend on housing.

Again, it's common for households with similar incomes to go with larger mortgages in lieu of savings or investments. I'm not saying doing that is good or bad (being house rich can be very bad, but in a few markets can also outgrow equities), but putting the banker numbers aside a moment, being hit with a $3500 monthly payment is a significant chunk of your take-home unless you are putting only minimal amounts into retirement savings. This is getting a bit OT, though there are some threads over in Personal Finance that cover this topic in depth.

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You are in a lucky situation where you must live to get a house for that price at 250k.. I live in one of the most expensive cities for housing prices rising (shortage of housing) and you really couldn't get a house for 250k unless you want to live in a bad area of town of a very old house or somewhere that is a 50 mile drive into the city, etc... The housing market is out of control in several cities.  Times have changed from what they use to be.  Just like interest rates for houses in the 80's use to be 15+% with good/excellent credit.  Guess things just change.  More power to people that can pay for a house with cash, but I had to spend 300k+ for a starter house recent although new outside the city if that is 1775 sqft.. Same house inside the city would go for over 500-600k and it is nothing special a basic cookie cutter house.  Only thing nice about new construction even for a cookie cutter house is at least I dont have to worry about AC or roofing or anything like that out of pocket for the foreseeable future.

could of kept paying 1700/mo rent for for a 1 bedroom 775 sqft apt or 2k approx a month for a house and 400+ is going towards principle.  Kinda a no brainer in my situation.  Does it suck having a fairly high DTI ya, but hopefully things continue to go good with the economy and I will have nothing to worry about.

[iced]

We actually live downtown in a major city. Real estate sells for over $1000/sq ft.

You touched on how we will manage though. My limits refer to borrowing, not paying cash.

We’re looking to move into a new condo in the next 12 months and are trying to find something in the $1 to $1.5 million range. We will borrow about $250,000 and pay the remainder in cash.

Patience in saving and luck with our current equity was required to get to the point where we can do that.