Cosigning An Adult Childs Mortgage. Think Twice Before Signing

Written by Posted On Monday, 09 March 2020 07:48

Cosigning a mortgageParenting your children never stops. Even when your children are adults, are married and have kids. There still may be a need and a want to help and support your adult children.

A huge milestone in a son’s or daughter’s life as they grow into adulthood is to purchase a first home. As a parent you may want to be a part of that success.

Sometimes, as your offspring start to buy homes, they may ask you to cosign for a mortgage on a home. Deciding to cosign for a mortgage is a very personal decision and should not be taken lightly. So should you cosign a mortgage for your child?

What Does It Mean To Be A Cosigner On A Mortgage For Your Children?

In essence, you are piggybacking your well established credit profile on to your child’s credit profile. They will be tapping primarily into your income to secure a mortgage and potentially your credit score as well.

When your asked to be a cosigner, it is so your child can qualify for a mortgage or qualify for a more favorable mortgage program for first time home buyers than they could get on their own. Potentially saving them 100’s of dollars in mortgage payments or even just be able to qualify for any mortgage.

Most often they are tapping into your income to lower their debt to income ratio. Many bank programs will allow 41-43 percent of a person’s (or couples) gross income to go towards housing expense. While you are not paying the mortgage, your income and guarantee will lower the debt to income ratio into a range that will fit into a program they could not qualify for on their own.

Top Considerations When Considering Cosigning a Child’s Mortgage

There are many reasons not to be a cosigner and few benefits to doing so.

Not only are is it important to consider the following if you are contemplating being a cosigner on a mortgage, many of these points are for you to consider in any situation where you are asked to cosign for a loan, like a auto loan, credit card, student loan etc…

You are 100% Responsible For The Mortgage

First and foremost, you have to remember as a cosigner on a mortgage you are still wholly responsible for the balance. Meaning if for some reason the there is a default on the mortgage, the bank will be seeking full payment from you and/or your child. They are going after whomever can pay the full balance on the mortgage.

You Have No Control Over The Property

Typically, a cosigner is not on the title to the property. They are strictly used for qualifying purposes and are guaranteeing the loan. You have very little control of what goes on with the property once you become a cosigner. If your child is not maintaining the property and protecting the asset, you have no recourse.

Will Being A Cosigner Effect My Credit?

What many people tend to forget as a cosigner, is that their credit profile could change drastically and could prevent the cosigner from securing credit for themselves in the future.

The entire payment and balance is added to both the child’s and parent’s credit profile. Even if your child makes all the payments in a timely manner the mortgage you cosigned for will affect your personal debt to income ratio in the future.

Worse still, is your child is late or defaults on payments. This will unfortunately have an impact on your credit score. If it impacts your score drastically, it will hinder your ability to secure credit for yourself in the future.

Being A Cosigner On A Mortgage Could Last 30 Years

While the intent may be to rectify credit issues and/or refinance in a couple of years, things can change. Interest rates can go up, jobs change, etc…

The intention to get you out of the situation has the potential of not being a reality. Realize you can be on the hook for up to 30 years, the typical life of a mortgage.

Risk/Reward of Cosigning for a Mortgage

Let’s face it the risk reward of cosigning for your child’s mortgage is very low.

As the cosigner you are taking all the risk without out any of the reward. You are putting your hard earned credit profile on the line so your child can own a house. The reward is helping your child buy a home. But realize you are taking all the risk

Could Be A Cosigner Affect Your Relations

The mere fact that your adult child aske you to cosign a mortgage for them can change their relationship dynamic if you should say no. Feelings can get hurt.

Alternatively, if you do cosign for a mortgage and things don’t go as planned their will certainly be a shift in the relationship dynamic. It is certainly a discussion to have.

What Else Should I Consider before Cosigning My Child’s Mortgage?

Understand why your child is asking you to cosign a mortgage for them. For whatever reason they were not able to secure a mortgage on their own. What are the issues surrounding the circumstances that are not allowing them to be approved for a mortgage?

Usually the biggest issues are they do not make enough money to qualify for a program. This could be a clear matter of them not making enough money or that their credit score is preventing them from going into more favorable programs that allow a higher debt to income ratio.

Take into consideration if cosigning for your child is helping them or just putting a band aid on a poor situation. If your child’s income is not enough to support a mortgage in the bank’s eyes, why would it be in yours. Quite frankly the banks are quite liberal in how much of someone’s income can be used towards a mortgage.

Maybe instead of cosigning for your adult child it may benefit everyone in the long run to discover why they were unable to be pre-approved in the long run and work on fixing the issue. By fixing the issue your child should be able to get a mortgage on their own.

Summary

Whether you consign on a home for your child or not, realize there is no right or wrong decision. It is strictly a personal decision that must be made by you.

In my experience the person asking you to be a cosigner can be quite naïve. The seed could have been planted by a loan originator and your son or daughter has no idea the long lasting affect being a cosigner has on you.

Definitely much conversation should be had with the child making the request. Talk through what happens in different scenarios. Make sure both parties have a clear understanding of what the expectations are should you decide to go down that path.

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Kevin Vitali

I have been a full-time real estate agent since 2002.  When it comes to helping home buyers and sellers experience matters.  I have hundreds and hundreds of successful transactions under my belt.  Each one brings a set of challenges to the table for me to draw on to help you buy or sell a home.

Home Buying-  I work as a Massachusetts Buyer's Agent representing your best interest in a home purchase.  I can work with you throughout the entire process from deciding if buying a home is right for you, to recommending a great home inspector, to a successful close on your new home. 

Home Selling-  Over the years I have developed a Marketing Plan that gets your home sold.  I can work with you on preparing your home for maximum return, to pricing it properly, to leveraging professional photography and the internet.  All adds up to getting your home sold for the most amount of money, in the shortest amount of time with the least amount of hassle.

I am based out of EXIT Group One Real Estate in Tewksbury MA and cover all of Essex County and Northern Middlesex County in Massachusetts.  If you are looking to buy or sell give me a call.

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