Community Property States Mortgage Guidelines
This guide covers community property states mortgage guidelines. Community Property States Mortgage Guidelines: Community property is derived from older Spanish law, which allows for a 50/50 split in any property owned by a married couple. This derives from the notion that maintaining equal ownership is essential to establishing a strong family unit, an important civil component of society. All FHA, VA, and USDA loans require all non-borrowing spouses’ debts to be counted in the debt-to-income ratio calculations by mortgage underwriters. Fannie Mae and Freddie Mac do not require non-borrowing spouses’ debt to be counted on debt-to-income ratio calculations on conventional loans:
Three different government-backed loans exist: FHA, VA, and USDA. All government-backed loans require the non-borrowing spouses debts be counted by mortgage lenders in the debt-to-income ratio calculations. This holds true even though the spouse will not be on the note or title of the mortgage loan. This rule does not apply to conventional or non-QM loans.
There are nine community property states (mostly southwest, except Wisconsin), unlike states with an equitable distribution based on what they bring into a marriage, which is considered separate property. That entails a home they owned before they were married to each other and not specifically guaranteed to be divided.
Who Owns Real Property In Community Property States
In California, a 50/50 split is mandated by law. California community property states mortgage guidelines for homebuyers. Community property is composed of real property and personal property.
Prenuptial agreements aside, when we are following divorce and probate law, these are the factors the state and counties look into when there is a death and no will or trust is established.
There are positive tax implications when one spouse dies, and the property is transferred in the “right of survivorship) clause. The tax rates at capital gains (please consult an accountant for real-specific advice) are lower when the property is sold.
Community Property States Mortgage Guidelines on Asset Allocation
Pensions, options, annuities, or retirement vehicles are more difficult. Determining what was established before marriage and together is unclear if both parties were married or built up an estate before they were together. Owning a business, and how that business was built up if there is another partner, how will that be divided when the one partner dies? Is there a succession plan or liquidation option?
How Community Property States Mortgage Guidelines Affect Qualifying For Home Loans
Some lenders will count all the debts under a credit report together in community property states. This may negatively affect a borrower’s ability to qualify for a home loan when their combined debt is higher, even if the other is not on the loan. In review, in community property states, the 50/50 model is assumed, whereas, in others, it must be requested or established when title and vesting are set up.
Community Property States Mortgage Guidelines affect FHA, VA, and USDA loans because the non-borrowing spouse’s debts is counted on debt-to-income ratio calculations. This holds true even though the spouse is not in the mortgage or the deed of the home. Borrowers with non-borrowing spouse with high debts need to see if they can qualify for a conventional loan.
A proper estate plan can address these issues and prevent expensive probate, which divides families. Suppose you want to avoid this conflict. Have this conversation while you are alive and getting along. If the children are meant to be the beneficiary, consult an estate attorney to address the division of assets when you are gone. This is such a complex and detailed subject, I will write more about it soon.
About Author of Community Property States Mortgage Guidelines John Parker
John Parker, a senior loan officer and business development manager at NEXA Mortgage, LLC, and the Editor in Chief of Best VA Mortgage Loans, authors this guide on community property states mortgage guidelines. John Parker is an associate contributing editor for Gustan Cho Associates and a veteran real estate and mortgage market expert. John Parker is sought by many real estate professionals, such as real estate attorneys, agents, mortgage professionals, bankers, and consumers, for his extensive knowledge of compliance and industry regulations in the real estate and financial markets.
John is an expert in all areas of real estate and lending. His major strong points are sales and marketing, title servicing and problem-solving, banking, training, and account management.
John Parker oversees sales and business development for Michael Neill, the President of AXEN Mortgage, LLC, the correspondent channel of NEXA Mortgage, LLC. John Parker’s passion is working with real estate and lending professionals and sharing his invaluable expertise and experience with others.
Community Property States Mortgage Guidelines on Government Versus Conventional Loans
Many real estate and mortgage professionals must keep up-to-date with the many market changes to keep competitive in today’s tough housing market. In his spare time, John Parker enjoys working and riding his three Harley Davidson motorcycles, mixed martial arts, scuba diving, fencing, basketball, baseball, playing musical instruments ( John is an expert guitar player ), and, most importantly, spending time with his wife and his Great Dane.
John Parker has a proven track record where he has taken the growth of companies to realize a 20% to 50% growth in two years. Gustan Cho Associates is proud and honored to have Mr. John Parker as a consultant and guest writer.
John Parker is an expert consultant to many real estate and lending professionals. John’s expertise includes training mortgage and real estate professionals, market analysis, focus groups, budgeting, payroll management, investment and financial consulting, market analysis and updates, and customer and product training. Community Property States Morgage Guidelines only affect FHA, VA, and USDA loans. Fannie Mae and Freddie Mac Community Property States Mortgage Guidelines do not affect non-borrowing spouses debt on conventional loans.
