August 27, 2013
A reader asks, “My husband and I are looking to apply for an FHA loan. We just recently got married. He is more than qualified to apply on his own, with a good credit score and great income. I, unfortunately, have terrible credit and unresolved debts (prior to marriage). Is it possible for him to apply on his own without factoring in my debt? Our loan agent told us that I had have my credit checked and my debt would also be factored into the debt to income ratio, but not my income. Is this true?”
The answer to this question is fairly simple–it depends on the laws of your state. The first thing a borrower in this situation should do is check to see if they are living in a community property state where the law requires both borrower and spouse to be equally obligated on major financial transactions such as a home loan.
In any state where the law dictates this or similar considerations for a married couple, what this borrower was told may be true. Here is what the FHA loan rules say as defined in HUD 4155.1 Chapter Four, Section A:
“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.”
Furthermore, FHA loan rules state, “The non-purchasing spouse’s credit history is not considered a reason to deny a loan application. However, the non-purchasing spouse’s obligations must be considered in the debt-to-income (DTI) ratio unless excluded by state law. A credit report that complies with the requirements of HUD 4155.1 4.C.2 must be provided for the non-purchasing spouse in order to determine the debts that must be counted in the DTI ratio.
Note: This requirement is applicable if the subject property or the borrower’s principal residence is located in a community property state.”
As with many other issues, FHA loan rules DO NOT override state or federal law.
For more information on this issue, you should check with a legal expert or real estate expert who can advise on state law as applicable in your area. Some borrowers may not be affected by community property laws for the simple reason that not all states have such laws. But those who do live in community property states will need to carefully examine both the spouse and non-purchasing spouse’s credit to avoid surprises in the FHA loan application process.
Do you have questions about FHA home loans? Ask us in the comments section.
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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