Personal Finance: Can Husband Sell His House to Wife to Get the Debt Off Credit Report?
Potential Problems Selling a Home to a Spouse
For those who are trying to increase their credit score to secure business financing or for other reasons, the question may arise can a husband sell house to wife to get debt off credit report. The answer is yes, technically, but there may be some potential problems that can determine whether this is a viable option.
Legal Considerations
There are some legal considerations that must be a part of making a decision to sell their home to a spouse. There are still ten states that are considered community property. Those who live in the states Arizona, California, New Mexico, Nevada, Idaho and Washington, as well as Texas, Wisconsin and Louisiana (and if elected, Alaska) cannot have the debt removed from their credit if the wife takes out a mortgage.
Current joint ownership - if a husband and wife own the home together, the husband would be required to sell his “half” of the home to his wife. This is typically called a buy-out and may require approval of the mortgage lender. There would have to be a purchase and sale agreement and the home would then be re-mortgaged in only the name of the wife;
Current sole ownership - if the husband owns the home alone, then he must sell the home to his wife. This means that at a minimum, the sale must be for the full amount of the current mortgage (or mortgages) on the home. This also means that the wife has to have sufficient credit and be able to secure a mortgage on her own.
Financial Considerations
While it may seem like a good idea, while researching can a husband sell his house to his wife to get the debt off his credit report, it is critical to find out the financial considerations of this type of sale. Remember, that selling a home to a spouse is not considered an arms-lenght transaction and may have financial impact.
Tax considerations - depending on your individual tax conditions, there may be taxes due after this type of sale. Some of this will depend on how long the home was owned before being sold and how the proceeds of the sale are to be utilized. It is a good idea to talk to a tax accountant or lawyer to find out the potential rules that apply to individual circumstances;
Payment considerations - if your current mortgage payments are affordable, it may not be financially feasible to change your interest rate or the amount of the mortgage. Either of these factors may result in higher payments and may also require new personal mortgage insurance. Talk to your current lender and find out if it is possible for them to assist you with this. There may be a clause that allows your spouse to assume your current mortgage for a small fee.
Summary
While it may initially sound like a good idea to clear your credit report by selling your home to your spouse, before you do it is a good idea to speak with a tax planner. Your lender should also be contacted to see if they can help facilitate this type of transaction. There may be considerations which would not make this a good idea financially.
Sources:
- Bankrate.com MacDonald, Jay Community property, common law, assets and debts https://www.bankrate.com/brm/news/pf/20060322a1.asp
- IRS: Publication 523 https://www.irs.gov/pub/irs-pdf/p523.pdf
Image credits:
- Couple checking options via freedigitalphotos/Ambro
