If you're new to originating or new to originating loans in community property states (listed below), this is a must read.
We’ve seen a lot of different loan officers expanding into different states while the market shifts. While there can be several different rules to pay attention to, making sure you’re aware of which states are community property states while originating government loans is important.
What is a community property state?
Community property states are states that have community property laws for married partners. It’s a set of laws that impacts how assets are held and treated. Unless there is a prenuptial agreement (prenup), typically most assets/income/liabilities acquired during marriage are considered shared.
What states are community property states?
How does that impact government loans?
On government loans (aka FHA, VA, USDA), originators are required to count the debt of a spouse against the borrower (even if the spouse isn’t going on the loan). Example - let’s say a spouse isn’t going on the loan (non-borrower spouse) because of their very low credit, you’ll still need to run their credit and count their debt against the borrower on the loan.
How does the impact other loans (conventional, jumbo, etc)?
For conventional loans and the majority of other loan, there is no impact to qualification even if the non-borrowing spouse has debt. You do not need to count any spousal debt in any state if they’re not going on the loan typically.
Is there anything else to know?
In a community property state, if you have a borrower buying a home without their spouse (no matter what the loan type), that spouse will usually have to sign a deed (usually called a disclaimer deed) stating they are not going on title. This can cause issues if a spouse is out of town, etc and not planned ahead of time.
