August 24, 2015
There are a lot of questions asked about FHA loans and how spouses can buy together. Can the FICO scores of one spouse make up for the lower scores of the other borrower? Can one spouse’s income offset the lower income of the other? How does state law factor into FHA loan applications when spouses apply?
All valid questions. But what about circumstances where one spouse is not borrowing? Does an FHA loan require action on the part of a non-borrowing spouse?
The answer can be influenced by state law, lender standards, and FHA loan regulations. At the time of this writing, FHA loan rules that govern non-purchasing spouses can be found in HUD 4155.1 Chapter Four, Section A. There we learn the following:
“If required by state law in order to perfect a valid and enforceable first lien, a non-purchasing spouse may be required to sign either the security instrument or documentation indicating that he/she is relinquishing all rights to the property. When the security instrument is executed for this reason, the non-purchasing spouse is not considered a borrower, and not required to sign the loan application.”
Does this mean that the non-borrowing spouse who does not sign the mortgage note has no stake in the home once purchased? FHA loan rules state clearly:
“Non-applicant individuals can have an ownership interest in the property at the time of settlement without executing the mortgage note and security instrument, regardless of whether the transaction is a purchase or a refinance.”
The rules that govern applying for the new loan in such cases tell the lender that certain considerations apply, depending on circumstances, with regard to the financial obligations of a non-purchasing spouse:
“Except for obligations specifically excluded by state law, the debts of the non-purchasing spouse must be included in the borrower‟s qualifying ratios, if the borrower resides in a community property state, or property being insured is located in a community property state.”
We’ll cover how community property laws can affect FHA loan transactions in another blog post.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It is easy 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.
Browse by Date: