November 6, 2015
A reader got in touch recently to ask if a financial judgment against a non-borrowing spouse could be a liability when applying for an FHA mortgage loan.
The answer really depends on whether the borrower resides in a community property state, and whether community property laws in that state might have something to say about how a legally married couple applies for a major financial obligation such as a home loan.
FHA loan rules have specific guidance for the lender in community property states when it comes to issues like debts, judgments or other financial issues affecting the non-borrowing spouse. These rules are found in HUD 4000.1 and state:
“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.”
For judgments, FHA loan rules say, “Judgments of a non-borrowing spouse in a community property state must be resolved or paid in full, with the exception of obligations excluded by state law.” Notice that the word “resolved” is used here, which could be a big help for those who have arranged a payment plan as opposed to a full payoff all at once:
“A Judgment is considered resolved if the Borrower has entered into a valid agreement with the creditor to make regular payments on the debt, the Borrower has made timely payments for at least three months of scheduled payments and the Judgment will not supersede the FHA-insured mortgage lien. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.”
As you can see, FHA loan rules do provide the lender with some flexibility here provided the proper procedures are followed:
“The Mortgagee must include the payment amount in the agreement in the calculation of the Borrowers Debt-to-Income (DTI) ratio.
The Mortgagee must obtain a copy of the agreement and evidence that payments were made on time in accordance with the agreement.”
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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