The nine community property states are:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
Community property means that spouses who buy property during marriage own property equally. If the couple divorces, community property is divided 50 / 50.
Understanding Spousal Debts
When purchasing a home in one of the community property states while married, it’s crucial to consider both spouses’ debts, even if only one person is applying for the loan due to credit or income reasons.
Example Scenario
For instance, let’s take the case of Mr. and Mrs. Smith, who have just gotten married. Mrs. Smith has a $500 monthly car payment and a $25 minimum credit card payment. Even though Mr. Smith is the sole borrower on the loan, both of Mrs. Smith’s accounts must be included in his debt-to-income ratio.
Exceptions for Unmarried Couples
However, if both individuals are engaged but not legally married, then the significant other’s debts don’t need to be considered. It’s also important to note that negative debts, such as collections or charge-offs, are not applicable in this scenario.
Impact of Joint Debts
On the flip side, if you co-sign or co-borrow a debt for your significant other, whether you’re in a community property state or not, it will impact your credit report. Even in the event of a divorce where one party retains ownership according to the decree, the account will still be reflected in the credit bureaus until you are refinanced or removed from the debt.
Consulting with a Loan Officer
That’s why it’s crucial to consult with a loan officer before purchasing a home. They can thoroughly review your financial situation, determine which accounts need to be included in the debt-to-income ratio, and advise on which ones can be excluded, paid off, or need attention.
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FAQ
What is the point of community property states?
Community property states have laws that ensure assets and debts acquired during a marriage are shared equally between spouses, promoting financial fairness and equality in marital relationships.
Can a wife buy a house without her husband?
In community property states, even if the wife buys a house in her name only, it may still be considered marital property, with the husband potentially having rights to it. In non-community property states, the wife can typically buy a house without her husband, and it would be considered her separate property unless otherwise specified by legal arrangements.
