Refinancing Community Property States Mortgage Guidelines

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This BLOG On Refinancing Community Property States Mortgage Guidelines Was PUBLISHED On February 26th, 2019

Refinancing Community Property States Mortgage Guidelines

Refinancing Community Property States depends on the type of loan program.

  • Refinancing a property in a community property state can be difficult with government versus conventional loans
  • This holds true if both married couples have high debt

First, you must understand what a community property state is.

  • Community property laws only apply in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin
  • Alaska is unique in the sense that it allows couples to choose common law or community property law
  • Community property has to do with assets obtained while married
  • Different than “common law”
  • This blog will detail how refinancing a mortgage is affected by community property laws

What Laws Are Affected In Community Property States

What Laws Are Affected In Community Property States

Community property laws can affect the following:

  • Wages earned by either spouse during their marriage
  • Properties, as well as Furniture, bought during the marriage when purchased with marital earnings
  • Interest income earned by business Investments during the marriage

Refinancing Community Property States Lending Guidelines 

Refinancing Community Property States Lending Guidelines 

Community property laws pertaining to mortgages can be very confusing.

  • Marital property in a community property state simply means each spouse owns the asset equally, 50% / 50%
  • This means when completing a refinance within a community property state, one spouse may not transfer or alter the mortgage without the other spouse’s permission

Refinancing Community Property States Guidelines On Government Loans

Refinancing Community Property States Guidelines On Government Loans

Hopefully, our readers do not recommend completing a refinance without the other spouse’s knowledge, but you would be surprised, it does happen.

If you are using a VA, USDA, or FHA refinance loan, all marital debts will count against your overall debt to income ratio regardless if both spouses are on the mortgage loan.

Here is a case scenario Example:

  • Husband and wife would like to complete an FHA refinance in the state of California
  • They want to do this in the Husband’s name only as his credit score is higher
  • Since his income can qualify for the loan without his wife, they can close this loan without the wife on the mortgage
  • They will refinance with a better interest rate doing so without the wife’s lower credit score impacting the rate
  • Her credit will still be pulled so the lender can add her debts (spousal debts) to the overall debt to income ratio
  • Within a community property state, ALL DEBTS count against the DTI ratio on all government loans

Same is not true for conventional mortgages, but the spouse is still on the title with a conventional mortgage.

Homeowners Starting Refinancing Community Property States Process

Homeowners Starting Refinancing Community Property States Process

There are many reasons to refinance your home.

  • Lowering your rate, changing the term, taking cash out, or to remove a party from the loan are some of the most common
  • As stated above, in a community property state both spouses must sign off on the refinance
  • If you are trying to remove a spouse from the mortgage or title due to a divorce, you will need the divorce to be finalized before you can execute the transaction
  • Community property laws will not allow one of the spouse to be removed until the divorce is finalized
  • This is one of the largest obstacles Gustan Cho Associates deal with in community property states
  • Outside of community property states, it is possible to refinance without the divorce being finalized (with the proper documentation)
  • After a divorce, refinancing is common
  • Mainly when one spouse would like to stay in the property and buy out the other spouse
  • This way one spouse can receive their equity and the other spouse may retain the property

Regardless of the reason to refinance within a community property state, even for a conventional mortgage, both spouses must sign the closing disclosure and title for the property.

List Of Documents Required To Start Mortgage Process In Community Property States

List Of Documents Required To Start Mortgage Process In Community Property States

What documentation do you need to start a refinance? Below is a list of where to start:

  • Current Mortgage Statement
  • Last 30 Days Pay Stubs
  • Last Two Years W2’S
  • Last Two Years Tax Returns
  • Driver’s License
  • Homeowners Insurance Policy

Do you have your documentation gathered up, please call Mike Gracz on 630-659-7644 or text us for faster response.  You can also email mgracz@gustancho.com. Either Mike or one of our highly-skilled loan officers from Gustan Cho Associates at Loan Cabin will assist you. We are experts in refinancing within community property states. We can be reached seven days a week, morning or night. We are available to answer any mortgage related questions you may have.

1 Comment
  1. Richard E Rogers says

    Is this statement (“As stated above, in a community property state both spouses must sign off on the refinance”) true only for FHA, VA, and USDA loans, or is it also true for conventional loans? To be specific, in CA, if BOTH spouses are on the title to their home, but ONLY ONE is on the existing mortgage, can the one on the mortgage do a REFINANCE WITH CASH OUT without the other spouse’s consent and signature? Is this true for all loans, including conventional?

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