FHA spousal debt rule creates a debt-to-income imbalance for borrowers in community property states

Married homebuyers in community property states find their purchasing power reduced and some families are pushed out of the market because of a mortgage underwriting rule. The Federal Housing Administration (FHA) requires lenders to count a non-borrowing spouse’s debts when processing mortgage applications in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Lenders are prohibited from counting that same spouse’s income unless the spouse is an official co-borrower. This inflates a borrower’s debt load on paper, which increases their debt-to-income ratio. The National Association of Real Estate Brokers (NAREB) argues this creates a punitive double standard. Black borrowers in community property states face higher loan denial rates and receive smaller approved mortgage amounts than their White counterparts.