Listing spouses debts and income?

Question

I'm gearing up to get all my financials documented so I can start the process of finding lenders. When it comes to what debt is held, do I only list debt in my name (which would be the house mortgage that's in both my wife and I's name) and my own income, or do I list the debt that is in my wife's name as well (she has a student loan, and the credit cards are in her name) and her income?

Chris Mason · Answer

For Gov't loans (FHA/VA) in community property states, which California is, the spouse's debts count either way.

Aside from that, either or both of you can apply either way. Some couples like to do them in individual names so they can game the system and get past the Fannie cap of 10 mortgages, to 20 (10 each).

It's easiest to apply as joint, and then let the lender work it up all 3 ways: you alone, other spouse alone, and joint.

Fun historical context: back in the day women had a really hard time getting anyone to lend them money by themselves, without their husband as coborrower, and a mortgage would have been considered crazy-talk. This was back when Jane Smith did not have credit, only Mrs John Smith did, and it was joint credit only. But he could establish distinct and separate credit. The right to apply individually (& have an individual credit report), even while married and simultaneously female, was one of the things that women's rights folks back in the day had to fight for. And now it's a loophole around a Fannie guideline. :P

Jon Passow · Answer

Thank you so much for the extra in depth info, Doug!! I'll be sure to have all that information in case I'm ever asked. Always good to be prepared so I look even more professional when the time comes :)

Doug Smith · Answer

Jon, OK, I get it now. If you file jointly, flip back to your Schedule E. It doesn't only list your rental properties, but it has any interest that either of you have in other entities. Whatever is listed on that Schedule E, good underwriters with a formal credit background are going to want to see those returns as well. They will not only allow depreciation, amortization, and interest expense to be added back in to the income that carries through, but also it will allow the lender to see what other contingent liabilities a borrower might have that they haven't disclosed. Let's say one of your businesses has a $50K line of credit that is maxed out to a community bank. Not all community banks or other lenders report to credit bureaus, but they will see that you are writing off interest expense and reporting a liability on the balance sheet on the return, so they will ask about that. Most consumer underwriters don't understand self-employed lending well enough to have a command of business returns and financials, so you might not get the question, but you will at least be prepared. I wish I knew good local lenders in California to refer you to, but we don't do business out there. Good luck!

Jon Passow · Answer

Hi Doug, that does help. I'm looking, at the start, to purchase  multi-family homes (through my LLC), but by year 4 I'll be purchasing  large apartment complexes. My wife owns her own massage business so  W-2's would be out but she can provided tax returns.

Doug Smith · Answer

One thing to add: If you file jointly, don't be surprised if they want to see your wife's W-2s for those particular years if you are borrowing only in your name. The reason being that they will want to subtract her income out of a joint tax return. I don't think you mentioned the type of property you are financing. Conventional financing on a single family home usually won't require you to add your wife. For commercial, we usually try to get the wife on as a guarantor if at all possible. Good luck. I hope that helps.

Jon Passow · Answer

Perfect! Thanks for the replies guys!!!!

Anthony Dooley · Answer

@Jon Passow if you are going to borrow money in your name only and use your income only, then you wouldn't list her income or debt. If you file married filing jointly, you may as well combine both incomes and debt. The lender will want to see you tax returns over the past few years.

Listing spouses debts and income?

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