Buying House In Community Property States For Homebuyers
This ARTICLE Is About Buying House In Community Property States and qualifying for a mortgage loan
Buying House In Community Property States can be tricky on certain loan programs.
- Thousands of Americans live in a community property state and may not understand how this can impact buying a home until they apply for a mortgage
- In community property states, each spouse has equal ownership in the property
- In this blog, we will detail what it means to be a community property state, how would affect your mortgage loan, and how to apply for a mortgage with Gustan Cho Associates
In this article, we will discuss and cover buying house in community property states and qualifying for a mortgage.
What States Are Affected When Buying House In Community Property States
What is a community property state?
- Marital property purchased while married in a community property state are owned by both spouses equally, 50% / 50%
- Marital Property includes wages earned while married, all property bought while married, and all debts occurred during the marriage
- Marital property in a community property state begins at marriage and ends if a couple physically separate with the intention of completing a divorce
So, any earnings after separation are not community property.
Asset Distribution In Community Property States
An asset acquired before the marriage is considered “separate property” and is solely owned by that person.
- If so chosen, a spouse can transfer title of their separate property into dual ownership as community property
- For example, the money in a bank account before marriage can become community property if you add your spouse to the bank account as an account holder
- Within a community property state, separate property can include property owned by one spouse before marriage, property given to just one spouse during the marriage, or property inherited by just one spouse
Community property will always include money either spouse earned during the marriage. However, things earned prior to the marriage will belong to the spouse who had it prior to marriage. Assets and money earned during marriage will be joint property.
Negatives When Buying House In Community Property States
During a healthy marriage, community property is not really a big deal.
- It can be an issue during divorce and property distribution upon death
- When a spouse passes before their partner, the community property is automatically deeded to the surviving spouse, avoiding any court proceedings
Any community property is divided evenly 50% / 50% between each spouse during divorce and or separation.
What States Are Community Property States
What states practice community property?
- New Mexico
- Alaska (when requested)
How does living in a community property state affect your mortgage qualifications?
Qualifying For A Mortgage And Buying House In Community Property States
If you are legally married within a community property state, there are a few key points you must know before purchasing a property.
- Residing within a community property state will require credit verification for any non-borrowing spouse on a government-backed mortgage
- A government back mortgage includes USDA, FHA and VA mortgage loans
- These government-backed mortgages hedge their risk by factoring in non-borrowing spouse’s debt when evaluating mortgage qualifications
- In short, even if you are not on the mortgage loan, your debts will count against the overall debt to income ratio
- If you are not on the mortgage loan, your income will not count toward the debt to income ratio
The thought process behind adding spousal debts is to negate any future financial woes such as a judgment being placed against the property for the non-borrowing spouse.
Debts Included In DTI When Buying House In Community Property States
ALL Non-borrowing spousal debts are included in the debt to income ratio. This includes any mortgage debt, credit card debt, personal loans, auto loans, collection accounts (non-medical), and judgments. Any items reporting to credit and any judgments / public records (tax liens).
Credit Scores Used By Mortgage Lenders
It is important to understand that the credit score of the non-borrowing spouse does not affect mortgage qualifications. The credit score is not taking into account, the minimum payments due are taken into account. So even if the non-borrowing spouse has a horrible credit profile, you may still qualify for the mortgage.
It is also important to understand that the non-borrowing spouse credit profile will NOT be taken into account for a conventional mortgage.
- That is the only work around if your debt to income ratio does not work when adding spousal debt on a government-backed loan
- Gustan Cho Associates are experts in all FANNIE MAE and FREDDIE MAC mortgages
We offer all of their specialty loan programs and do not have any additional LENDER OVERLAYS.
Qualifying For A Mortgage With A Lender With No Overlays
How to apply for a mortgage with Gustan Cho Associates:
First, gather the following documentation (for all persons on the loan application):
- Last 60 Days Bank Statements – to source down payment
- Last 30 Days Pay Stubs
- Last Two Years W2’S
- Driver’s License
- Last Two Years Tax Returns (not always required)
Once you have gathered your income and asset documentation, contact Mike Gracz on 630-659-7644 or [email protected]. After your one on one mortgage consultation with Mike, you will be sent an application link to complete online. This will give your loan officer permission to verify your credit profile and start your pre-approval. Of course, if you are located in a community property state, and using a USDA, VA, or FHA mortgage we will need your spouse’s information and pull their credit.
“Community property” may sound simple, but there are still loan officers out there who do not understand the concept. Gustan Cho Associates pride ourselves on being up to date on all mortgage guidelines. Please stay tuned to our blogs for future announcements regarding guideline changes for 2020. We look forward to hearing from you with any mortgage questions.