You’ve found the perfect home. It has all the bells and whistles and fits comfortably within your budget – but don’t start picking out paint colors just yet. If you are legally separated from your spouse, your marital status can complicate an otherwise simple approval process – especially if you happen to live in a community property state.
Legal Separation
Couples who legally separate often do so in lieu of divorce. The process is similar to divorce in that it allows a couple to seek the court’s assistance dividing property and settling child custody issues. Depending on your state of residence and your lender’s policies, your spouse’s voluntary participation may be necessary even if her name will not appear on the property title.
Calculating Your Debt-to-Income Ratio
Because your spouse will not be living in the home with you, you must demonstrate to your mortgage lender that you have the financial resources to afford the home on your own. Add up your recurring monthly expenses, such as credit card payments and car payments, and divide that number by your gross monthly income. The result is your debt-to-income ratio. While all mortgage lenders’ policies differ, most lenders prefer that applicants have a debt-to-income ratio of less than 36 percent.
Community Property States
If you live in a community property state, you must include your spouse’s recurring debts in your debt-to-income ratio calculations. Community property states hold each spouse legally liable for debts the other incurred during the marriage. Thus, should you and your spouse move from a legal separation to a divorce, your lender needs evidence that you can continue to afford your debts, your spouse’s debts and your mortgage payment. You cannot include your spouse’s income in these calculations.
Spouse’s Legal Release
Your lender may require you to obtain a written release from your spouse relinquishing any legal claims she may have on the property in question. You are still legally married to your spouse, and this legal release protects both you and the bank in the event you and your spouse eventually decide to divorce. If your lender requires this document and your spouse refuses to sign, you cannot close on your new home.
Credit Reports
If you live in a community property state, your lender may need to review your spouse’s credit history before approving your loan. This allows your lender to evaluate your spouse’s debts, compare those debts to your current income and determine whether or not you qualify for the mortgage.
The Fair Credit Reporting Act notes that a lender can only access an individual’s credit records without her permission if the lender has permissible purpose to do so. Because your spouse is not applying for the loan herself, the bank lacks permissible purpose. Without your spouse’s written permission, your lender cannot evaluate her debts and incorporate them into your debt-to-income ratio. Thus, your spouse’s refusal to grant your lender permission to access her credit records could cost you the loan.
In most states, getting approved for a mortgage after a legal separation isn’t that much different from getting approved for a mortgage while single or divorced. Unless you live in a community property state, your estranged spouse’s income and credit history does not affect whether or not you qualify for a mortgage.
Although disclosing your marital status could complicate the status of your mortgage application, you must be as honest as possible with your lender throughout the process. Providing false information on a mortgage application is a form of mortgage fraud.