Home Loans And DTI Calculations In Community Property States

DTI Calculations In Community Property States

DTI Calculations In Community Property States are calculated differently than non-community property states. The spouse, even though they are not on the mortgage note, is taken into consideration. Community property states require that the debts of the spouse are also the responsibilities for both parties and even though the spouse is a non-borrowing spouse, the debts of the non-borrowing spouse is counted on DTI Calculations In Community Property States. Community property states mandate that whatever property and debts that a married couple has, both the assets and debts are equally theirs, regardless if their names are attached to them or not. For example, if a husband purchases a home without the wife, the home the husband purchased also belongs to the wife even if the wife did not know about it or had any financial interest in it. Same with debts. If a wife were to purchase a car and take out a car loan and defaults on the car loan she purchased, the creditor can go after the husband as well. There are nine community property states in the United States. The nine community property states in the United States are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The state of Alaska is a state that is called an opt-in community property stat which gives both husband and wife the option to make their properties a community property.

Credit Scores And DTI Calculations In Community Property States

Again, the nine community property states in the United States are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Washington. In non-community property states, when a married couple purchases a home, the mortgage loan can just go under one spouse’s name and the other spouse’s credit nor debt to income ratios are not counted if the non-borrowing spouse does not go on the mortgage note. Only one spouse can go on the mortgage loan and both spouses can go on title so the credit, credit scores, income, and debts of the non-borrowing spouse does not matter. However, in the 9 community property states, the non-borrowing spouse’s credit does not matter but the debts will count in the DTI Calculations In Community Property States. For example, let’s take a case scenario here where John and Jane Smith are a married couple and here is the credit and financials of Mr. and Mrs. Smith. John Smith is the borrower and Jane Smith is the spouse of John Smith and is not a borrower. Here is the case scenario.

John and Jane Smith are a married couple and are planning on purchasing a home in the state of Texas, a community property state. John Smith works full time and Jane Smith is a stay at home mom with no income. John Smith has great credit but Jane Smith has bad credit and has outstanding unpaid collection accounts.

John Smith, Middle Credit Score of 700 FICO, total monthly debts of $1,000 per month, makes $6,000 per month gross, and has no collection accounts and stellar payment history.

Jane Smith, Middle Credit Score of 500 FICO, total monthly debts of $500 per month, outstanding non-medical collection accounts of $10,000, no income because Jane Smith is a stay at home mom.

The proposed P.I.T.I. (principal, interest, taxes, insurance) payments of the new home is $1,000.

Even though John Smith will be the sole person to go on the mortgage note, John Smith’s mortgage lender will need to pull Jane Smith’s credit and go over Jane Smith’s liabilities on her credit report. The credit scores do not matter and the derogatory credit history does not matter. However, since Jane Smith has $10,000 in outstanding unpaid non-medical collection accounts, FHA Guidelines On Collection Accounts require that if a FHA borrower has outstanding unpaid non-medical collection accounts with an aggregate balance of more than $2,000 dollars, then the mortgage lender needs to take 5% of the outstanding unpaid collection account balance and use that figure in DTI Calculations even though no payment needs to be made by the borrower. On this particular case, 5% of the $10,000 non-medical collection account balance yields $500 so $500 will be used as a monthly debt payment for John Smith. On this case scenario, the monthly debts for John Smith will be his $1,000 per month in total monthly minimum payments, plus $500 per month of Jane’s Smith’s monthly debt obligations, plus the 5% of the $10,000 outstanding unpaid non-medical collection account balance for a total monthly expenses of $2,000 per month.  The proposed P.I.T.I. on the new home is proposed at $1,000 per month. So if you add the total monthly debt obligations of $2,000 per month plus the proposed P.I.T.I. of $1,000, the grand monthly debt payments for John Smith will be $3,000 per month. If you divide the $3,000 monthly total debts which includes the new home P.I.T.I. and divide it by John Smith’s monthly gross income of $6,000, the debt to income ratio comes out to be 50% DTI. Since John Smith’s credit scores is over 620 FICO, the maximum back end debt to income ratios permitted is 56.9% DTI which his 50% DTI meets the DTI Requirements. The maximum front end debt to income ratio for borrowers with credit scores over 620 FICO is 46.9% DTI. The front end debt to income ratios is calculated by taking the P.I.T.I. or $1,000 and dividing it by the borrowers gross monthly income or $6,000 which yields 17% DTI, which is lower than the 46.9% front end debt to income ratio maximum.

DTI Calculations In Community Property States: Lender Overlays

If you are looking for a mortgage lender with no lender overlays in community property states, please contact me at 262-716-8151 or email me at gcho@gustancho.com.  My team of loan officers and I are available 7 days a week, evenings, weekends, and holidays to take your phone calls or emails and answer any questions you may have. We do not have any mortgage lender overlays and just go off the automated findings of the Automated Underwriting System . Minimum credit scores to qualify for a 3.5% down payment FHA insured mortgage loan is 580 FICO credit scores. You do not have to pay off any outstanding collection accounts with us to qualify for a FHA Loan. Charge offs do not matter. More than 70% of our borrowers are folks who either could not qualify with a different mortgage lender due to their investor overlays or got a last minute mortgage loan denial .

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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