VA Mortgage Loan Requirements for Non-Borrowing Spouse
by Douglas S. from Newburgh, IN
Ask Kate about VA mortgage loan requirements for a non-borrowing spouse: Douglas's wife does not want to be a co-borrower on his VA mortgage. Yet the lender is asking her to sign a couple of loan documents as a borrower. She responds, I will sign nothing without a understandable reason. (I'm liking her!) But will VA still allow Douglas to finance his home? Well, there IS a fly in the ointment!
Ask Kate: Non-Borrower Spouse's Signature Requirements By Douglas S. from Newburgh, IN
I am closing a VA loan on the 31st of March and I am buying this house as a sole borrower.
I received the closing package and there are several places that they say my non-borrower wife must sign. One even notes that she is a borrower.
Can you advise as to what items she is required to sign in the state of Indiana? She has advised me that she will sign nothing without a understandable reason.
Kate's Answer: Non-Borrower Spouse's Signature Requirements
Mortgage approvals with non-borrowing spouses can be complicated in community property states where property purchased during the marriage belongs equally to both spouses, as well as debts incurred by either party.
States that the Veteran's Administration recognizes as community property states are Arizona, Louisiana, Texas, California, Nevada, Washington, Idaho, New Mexico, and Wisconsin. However, to the best of my knowledge, Indiana is not a community property state.
Here are 3 scenarios in the loan approval process that pertain to non-borrowing spouses in community vs non-community property states followed by the fly in the ointment.
1. Are Credit Reports Required on Non-Borrowing Spouses?
Will lenders automatically require credit reports on non-borrowing spouses to be included in the loan approval process? The answer is yes. If the house is located in one of the community property states, VA requires the lender to run credit reports on both parties. But not necessarily in non-community property states.
Along this line, you'll also want to read Do Inquiries Damage Your Credit Bureau Scores
2. Can Non-Borrowing Spouses Be Joint Homeowners?
Let's discuss about another common scenario. Say the wife wants to purchase and own the home but not be a mortgage applicant. Would this be possible with a VA loan?
Yes, generally. If the home is not located in a community property state, the non-borrowing spouse can be named on the title to the home without disclosing financial information. But he or she will need to sign title documents as required by state law to establish ownership.
See the difference between owning a home and mortgage indebtedness at Sell Your House Safely: Why Would You Owe If You Don't Own
Note that I said 'generally' because I am not an attorney and can't possibly know each state's property laws. But a local title company should be a reliable source of information regarding this and can also let you know of their company's requirements as the insurer of the title.
More information on title is found at How to Get a Mortgage - Meet the Title Insurance Companies
3. Can a Spouse Be Both Non-Borrower and Non-Purchaser?
As in your case, some spouses prefer to refrain from both borrowing on the mortgage and owning the home. Again, in general, this should be possible with a VA mortgage as long as the home is not located in a community property state.
The Fly in the Ointment - Lender Overlays
Lenders cannot decrease VA loan requirements without permission or they stand the costly risk of buying back loans or losing their VA certification. But they are allowed to add stricter conditions.
These added rules are called 'overlays.' I call them the fly in the ointment. Mortgage borrowers call them an unpredictable headache. Note that not all lenders create the same overlays. Get the big picture at Aggravating Lender Overlays
If the bank you are using insists on adding unreasonable overlays, you could shop other lenders' loan requirements regarding non-borrowing spouses. However, keep in mind, that you may end up hitting the same brick wall in the end. There are risks involved in switching lenders mid-stream (new credit reports, appraisals, loan conditions, increases to interest rates, etc.) so be cautious if you decide to take that route.
Accurate Mortgage Closing Documents
Either way, you certainly can question why your non-borrowing spouse is being asked to sign loan documents as a borrower. Even if this is a merely an oversight, correcting the documents before closing will be much easier than afterward
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