Your Spouse's Credit Could Hurt Your Chances of Buying a Home

By Chris Berk

NEW YORK ( — My wife was entering her third and final year of law school when we bought our current home. While she landed a nearly full ride to a Top 20 school, after two years of nonstop studying, her debt and income profile didn't exactly glisten in terms of mortgage qualification.

In fact, it might have proved detrimental. Some lawyers may make good money, but most law students aren't exactly raking it in. Adding her to a loan application would have meant a net loss because her minimal debt exceeded her even more minimal income. It ultimately made more sense for me to qualify on my own.

For a lot of prospective homebuyers, being able to count a spouse's income is essential to qualifying for a loan. But there are certainly times when debts or bad credit actually make your spouse a homebuying liability.

The rub is that, depending on where you plan to purchase, your spouse's rough financials can still hurt you, even if you leave him or her off the loan.

Welcome to life in one of the country's nine community property states.

Community Property and Common Law

The roots of community property law reach back to the Roman Empire and beyond. At its most basic, community property is a legal framework for addressing the question of who owns what between a couple. The nine states currently recognizing community property are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Married couples who purchase a home in a community property state usually own it jointly, regardless of whose name is on the mortgage. That's different from the common law approach to property most of the country recognizes. Under common law, you own what you own, to put it plainly.

With community property, a spouse whose name isn't on the loan still co-owns the house. That's a potential cause for concern among mortgage lenders for a host of reasons. A big one is that a non-purchasing spouse's money woes could lead to a lien being placed on the property.