Mortgage Guidelines On Community Property States

by Gustan Cho

This ARTICLE Is About Mortgage Guidelines On Community Property States

There are nine community property states in the United States:

  • Community property states, married couples share 50% ownership on both assets and debts
  • This holds true even though ownership is only in one person’s name
  • Therefore, if a husband owns a house but the wife is not on the mortgage or the title of the home, the wife still owns half of the home
  • On the flip side, if the husband has no debt but the wife has a lot of debt including outstanding collections and/or charged-off accounts, the husband is responsible for the wife’s debts
  • It is tricky when it comes to buying a home in community property states
  • FHA and VA loans require non-borrowing spouses’ debts of the main borrower to be added to the debt to income ratio when mortgage underwriters are calculating the DTI of the main borrower
  • Fannie Mae and Freddie Mac exclude the non-borrowing spouses’ debts from debt to income ratio calculations in community property states
  • We will go over case scenarios on how mortgage underwriters calculate DTI on FHA versus Conventional loans

In this ARTICLE, we will discuss and cover the Mortgage Guidelines On Community Property States.

Mortgage Guidelines On Community Property States On FHA And VA Loans

FHA and VA loans have different agency mortgage guidelines versus Conventional loans in community property states.

  • In community property states, if you get married, then your assets that were acquired from the date of your marriage is also owned by your spouse
  • Your spouse owns 50% of your assets from the date of the marriage date
  • This holds true even though your spouses’ name is not on the asset
  • However, this also holds true with debts
  • If you are debt-free and get married to a spouse with tons of collections and/or charged-off accounts as well as large outstanding debts, 50% of the spouses’ debt is the liability of the other spouse

We will go over the different rules and regulations on FHA and VA loans versus Conventional loans in the next few paragraphs of this article.

Mortgage Guidelines On Community Property States On FHA/VA Versus Conventional Loans

FHA_VA Versus Conventional Loans

FHA and VA require non-borrowing spouses’ debts to be included by mortgage underwriters when calculating the main borrower’s income and debt to income ratio:

  • The non-borrowing spouses’ credit scores and/or income does not matter since they are a non-borrowing spouse
  • However, HUD and the Veterans Administration want mortgage underwriters to count the non-borrowing spouses’ debts and/or derogatory credit tradelines counted on FHA and VA loans
  • However, Fannie Mae and Freddie Mac do not have such rules in community property states on conventional loans
  • There are nine states in the nation that is classified as community property states
  • These nine states have state laws under community property states that state things purchased when you are married becomes the property of the couple
  • Again, this holds true whether or not the other spouse is on tile, loan, or ownership paperwork
  • Dependent on the type of mortgage loan program a homebuyer decides to get, qualifying for a mortgage may become a challenge for some married folks in community property states

If you are qualifying for a mortgage without your spouse in a community property state, some borrowers may need to choose a conventional versus an FHA loan.

Which Are The Nine Community Property States In The United States

There are nine community property states in the United States. Below is the list of the nine community property states:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Community Property Laws In Alaska

Alaska has a unique system of community property state laws.

  • Citizens of the state of Alaska also have the choice of choosing in creating community property estates, but it’s not required that they do so
  • Again, only FHA and VA loans require non-borrowing spouse’s debts to be counted to the main borrower’s debts
  • Conventional loans do not require the non-borrowing spouses’ debt to be included in the main borrower’s debts by mortgage underwriters when calculating the debt to income ratio of the main borrower

The debts of the main borrower’s non-borrowing spouse are not factored into the main borrower’s overall DTI calculation figures on conventional loans.

How Non-Borrowing Spouse Is Processed By Mortgage Underwriters

When a married couple qualifies for a mortgage, only one person should go on the mortgage if at all possible.

  • Both husband and wife can go on the title but why put both husband and wife on the mortgage note if only one person qualifies
  • Non-working spouses normally do not go on the mortgage note
  • However, on FHA and VA loans in community property states, the lender will pull the non-borrowing spouses’ credit report since the non-borrowing spouses’ debt count and added to the main borrowers’ overall debts
  • If the non-borrowing spouse has outstanding collections, those debts can affect the eligibility of the main borrower
  • For example, 5% of the outstanding collections are used as a monthly hypothetical debt even though the non-occupant co-borrower does not need to pay anything on non-exempt collection accounts
  • If the non-borrowing spouse has outstanding judgments and/or tax-liens, the judgment and/or tax-lien needs to be addressed

The judgment and/or tax-lien needs to be taken care of before the main borrower is eligible to qualify for a VA and/or FHA loan in community property states.

Mortgage Guidelines On Community Property States On The Non-Borrowing Spouse

The non-borrowing spouses’ credit scores are not taken into consideration. All lenders care about when reviewing non-borrowing spouses’ credit reports is to determine the debts. Non-borrowing spouses with large outstanding debts such as large outstanding student loan balances may affect the main borrower’s eligibility in qualifying for an FHA and/or VA loan.  Homebuyers with a non-borrowing spouse with large outstanding debts should consider qualifying for a conventional loan. Again, Fannie Mae and Freddie Mac do not take non-borrowing spouses’ debts into consideration on conventional loans in community property states. If you have any questions about the contents of this article and/or other mortgage-related topics, please do not hesitate to contact us at Capital Lending Network, Inc. at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Capital Lending Network, Inc. is available 7 days a week, evenings, weekends, and holidays. Capital Lending Network, Inc. is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. We also have a national reputation for being a one-stop mortgage shop because of the dozens of non-QM loan programs we offer with dozens of wholesale non-QM lending partners.

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Manuel Lopez December 26, 2020 - 8:01 pm

Thank you for a great informative article that is easy to understand about getting a VA loan in Texas, which is a community property state.
*Property Address:
–10902 Fawnview Dr.
Houston, Texas 77070
*Loan Type:
–Seeking a VA Loan
*Property Details
–5 Bedrooms * 4 Baths * 3,490sqft.
–2 Car Garage * Built 1955 * Lot 10,455sqft.
–Corner Lot * Private Swimming Pool
–County Appraisal Value: $251,703
–Independent AMC Appraisal As-Is Value: $303,000 (09/15/2020)
–Contract Purchase Price: $299,000
–Closing Date: 01/29/20221
–Funds Available /Equity /Reserves: $57,650
–Employment Status:
W2 & Self Employed
–Credit Score:
570
–Borrower Strengths:
-12 Month Documented Rental History with No Late Payments ($2,050 monthly)
-Veteran * US Army * 1996-2001
-Gets alot of his Income from (State & Federal) sources. Foster Parent * SS Income * VA Disability
–Borrower Weakness:

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Gustan Cho
Gustan Cho December 26, 2020 - 8:06 pm

It was a great pleasure speaking to you this afternoon, Manny. My Associate, Jammi Cash is licensed in Texas so she will be your assigned loan officer. Jammi Cash got you an approve/eligible per automated underwriting system (AUS) so you are set to go. Looking forward to working with you and your family.

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