Is Love Co-signing Your Child’s Mortgage Loan?

Posted on Feb 28, 2019 in Financial Tips, Home Buying Tips, Newsletter Article

Young homebuyers have a rough time compared to their parents when they were first-time homebuyers. They have more student debt, slower wage growth and are building wealth later in life than their parents did at the same age.

With so many hurdles to cross, parents like you may be thinking of co-signing so your son or daughter may have a home of their own. This would be a true act of love, but it doesn’t come without risk.

According to The Lenders Network, a co-signer can only help if the principal borrower’s income-to-debt ratio is too low, or has a shallow credit history. And if your child has a poor credit history, co-signing won’t help at all, as lenders will use the lower credit score to make their lending decision.

Adding your income will improve the ratio, but you will be as liable for the loan as your child without having any ownership or equity in the home because your name won’t be on the title and deed, unless you structure the purchase that way. Sharing this debt will also raise your debt-to-income ratio, which may make it more difficult or expensive for you to obtain other loans. And, in the worst case, you’ll have to make any monthly payments your child misses.

So what are the advantages? Making the payments on time and in full will improve your child’s credit scores. Once your child’s financial situation improves, he or she may refinance the mortgage loan to their name only.

From Chuck Barry’s February 2019 Issue of the Berkshire Hathaway HomeServices Monthly Newsletter.

© 2019 BHH Affiliates, LLC. Real Estate Brokerage Services are offered through the network member franchisees of BHH Affiliates, LLC. Most franchisees are independently owned and operated. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc.® Information not verified or guaranteed. If your property is currently listed with a Broker, this is not intended as a solicitation. Equal Housing Opportunity.

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