There are many situations where a veteran or currently serving military member could need to purchase a home without wanting to obligate a legally married spouse. Earlier this year, the Department of Veterans Affairs issued a Circular to clarify its policy on this issue; what is required in such cases?
According to VA Circular 26-16-01, “When a loan is originated that includes a Veteran borrower and a non-borrower spouse, the Veteran borrower must sign all documents including the mortgage note and the mortgage deed of trust (as required by state law). The non-borrower spouse must sign either the mortgage note or the mortgage deed.”
This policy does not apply to “joint loans” where multiple VA borrowers (non-spouses) are applying for a mortgage loan together with the obligation to be shared among all eligible borrowers.
Furthermore, the Circular states, the VA is aware that, “lenders occasionally make loans to Veterans who wish to use their home loan benefit to purchase a home and include their spouse in ownership, but the spouse does not wish to be on the mortgage loan. Including the spouse on the deed, but not on the mortgage note can create a problem in the event the loan was to be foreclosed because the non-borrower’s ownership in the property could defeat the foreclosure action. Delaying or preventing a foreclosure increases foreclosure claim cost to the government and Veteran.”
Basically, the VA Circular, while not stating new policy, does restate and clarify its existing policy for such cases. “VA does not allow an individual to take title to a property if that individual is not on either the mortgage or a deed of trust. Accordingly, if a spouse or other owner does not want to sign a mortgage note and be obligated for a VA-guaranteed home loan that individual must sign a deed of trust.”
VA loans made in community property states may be affected differently by state law than those buying homes in states that do not have such laws. Community property law refers specifically to how debts incurred by both parties in a legally recognized marriage are handled in cases of divorce. In cases where community property laws affect the mortgage transaction, the lender and borrower should have a conversation about how state law affects the loan.
In cases where a borrower does not want to include the spouse in the financial obligation, the information listed above would apply for VA mortgage loans, but how community property laws affect the borrower in case of divorce is something the borrower will need to discuss with the lender or a legal expert as laws vary from state to state.