Overview of Spousal Co-Borrower Rules
Spousal Co-Borrower Rules are guidelines that allow mortgage lenders in certain states—primarily community property states—to use the income of a non-borrowing spouse to offset shared debts when calculating the borrowing spouse’s debt-to-income (DTI) ratio. This can be crucial in qualifying for a mortgage when only one spouse applies for the loan.
Why These Rules Matter
When applying for a mortgage, lenders use your DTI ratio to assess your ability to repay the loan. Shared debts, like car loans or credit cards, show up on your credit report and impact your DTI. If your non-borrowing spouse has income that covers these debts but poor credit, you may want to exclude them from the loan application. However, those debts still count against you if you live in a community property state.
These rules help by allowing lenders to consider the non-borrowing spouse’s income in offsetting those shared debts, improving your DTI ratio without affecting the loan application credit score.
Which States Use These Rules?
The rules generally apply in community property states, where assets and debts acquired during marriage are legally shared. These include:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Alaska, South Dakota, and Tennessee have voluntary community property laws that may also influence these rules.
For more on these states and how they affect loan rules, see Community Property State Loan Rules.
How It Works: An Example
Imagine Jordan and Taylor. Jordan has good credit and applies for a loan alone but shares $1,000 in monthly debts with Taylor. Without applying the rule, Jordan’s DTI could be too high to qualify. With the spousal co-borrower rule, Taylor’s income is used to offset those shared debts, lowering Jordan’s DTI to an acceptable level.
This doesn’t combine incomes for qualification, but it prevents shared debts from unfairly penalizing the borrower.
Key Points to Remember
- The non-borrowing spouse’s income only offsets shared debts; it does not combine with the borrower’s income for qualification.
- The non-borrowing spouse generally won’t have their credit score pulled or used for interest rate decisions.
- The non-borrowing spouse typically must sign documents acknowledging the mortgage lien.
- These rules mainly apply in community property states.
Learn more about calculating your debt impact with our article on Debt-To-Income Ratio.
Additional Resources
- Consumer Financial Protection Bureau’s Ability-to-Repay rule outlines these protections.
- For how community property affects credit and loans, resources like NerdWallet offer useful explanations.
Final Advice
If you think Spousal Co-Borrower Rules could help your mortgage application, talk to a mortgage professional familiar with community property laws. They can guide you on documentation and lender policies to maximize your chances of approval.