FHA underwriting rules inflate debt ratios for married borrowers in community property states

Married borrowers in community property states are pushed into lower price points or denied mortgages due to current Federal Housing Administration underwriting rules. In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, the FHA requires lenders to include a non-borrowing spouse’s debt on mortgage applications. Lenders do not count that spouse’s income unless they are an official co-borrower. This mismatch inflates the primary borrower’s debt-to-income ratio, reducing their purchasing power. The practice differs from the standards used by Fannie Mae and Freddie Mac, which evaluate only the financial obligations of the individuals signing the note.