March 2, 2016
Some legally married couples who want to purchase a home don’t necessarily want to do so with both spouses on the mortgage loan. Does an FHA loan require both spouses to submit to a credit check even though only one will be the borrower?
The answer depends not on FHA loan requirements, but whether or not the couple live or are purchasing a home in a state with community property laws that have something to say about the nature of the debts incurred once the couple are legally married.
FHA loan rules in this area are found in HUD 4000.1, which has a section dedicated to instructing the lender how to process the credit information for a non-borrowing spouse in community property states.
This portion of the FHA loan rules introduces the concept by explaining, “If the Borrower resides in a community property state or the Property being insured is located in a community property state, debts of the non-borrowing spouse must be included in the Borrowers qualifying ratios, except for obligations specifically excluded by state law.”
However, FHA loan rules add that the non-borrowing spouses credit history, “is not considered a reason to deny a mortgage application”.
The lender is required to “verify and document” the debt of the non-borrowing spouse. “The Mortgagee must make a note in the file referencing the specific state law that justifies the exclusion of any debt from consideration.”
Furthermore, “The Mortgagee must obtain a credit report for the non-borrowing spouse in order to determine the debts that must be included in the liabilities. The credit report for the non-borrowing spouse is for the purpose of establishing debt only, and is not submitted to TOTAL Mortgage Scorecard for the purpose of credit evaluation. The credit report for the non-borrowing spouse may be traditional or non- traditional.”
There are additional requirements for married couples applying for an FHA loan. Information on any alimony, child support or similar financial obligations from a previous legal marriage would also be required to be documented.
“For Alimony, if the Borrowers income was not reduced by the amount of the monthly alimony obligation in the Mortgagees calculation of the Borrowers gross income, the Mortgagee must include the monthly obligation in the calculation of the Borrowers debt. Child Support and Maintenance are to be treated as a recurring liability and the Mortgagee must include the monthly obligation in the Borrowers liabilities and debt.”
The lender has some specific documentation requirements in this area. “The Mortgagee must verify and document the monthly obligation by obtaining the official signed divorce decree, separation agreement, maintenance agreement, or other legal order. The Mortgagee must also obtain the Borrowers pay stubs covering no less than 28 consecutive Days to verify whether the Borrower is subject to any order of garnishment relating to the Alimony, Child Support, and Maintenance.”
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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