Regardless of where you are purchasing your home, you need to understand how property laws and debts can affect your home loans. Community property laws are just one of many laws that dictate how assets and debts obtained by married couples before and after marriage are owned.
When taking out a home loan with or without your spouse, you should know what you are responsible for and what the laws in your state say about property acquired during the marriage.
What Are Community Property Laws?
Community property laws are laws that govern joint ownership between married couples. Property that is bought or acquired by a married couple during their marriage is equally owned by both parties, regardless of whose name is on the title.
These are different from states like Missouri where if your name is on a deed, title paper or another document, it is yours. You can leave it to whomever you wish after your death, barring spousal rights to claim a certain share.
Community property states include:
- New Mexico
Your Spouse’s Signature Will Be Required
Even if your spouse is a non-borrowing spouse, meaning that they will not be taking out a loan with you, their signature will still be required. Why? This is done to show that they are not a borrower and will not be required to sign the loan contract.
However, because of community property laws, the non-borrowing spouse has equal ownership of the loan debt and property.
Your Spouse’s Credit History & Debts Can Affect Yours
In community property states, debts are equally owned by both spouses, regardless of who incurred them. However, if the debts were taken out before your marriage, you are not responsible for them. When applying for a home loan, both you and your significant other’s credit history and debts will be taken into account, no matter who is signing the loan.
If your non-purchasing spouse does have poor credit, it cannot be used to deny you a government-backed loan such as FHA.
Know Your Debt Rights
When it comes to debts and whether or not you are taking out a loan with your spouse, you have rights. If you live in a community property state, you can choose to divide up your property in a way that your debts cannot be passed on to your spouse, and vice versa. Speak to a trusted lawyer and agent about applicable community property laws when it comes to your home loan and debt to protect your assets.