Oro Valley Real Estate - Co-Signing on a Mortgage
Young adults with low incomes or poor credit histories may ask their parents to co-sign on their mortgage—and it’s a growing trend.
But there are risks to being a co-signer. Whoever is co-signing has to bring substantial income because they have to be able to afford the new payments on top of all of their other debt. You’re adding up both borrowers’ debt, and you’re adding up incomes. It’s all-encompassing.
Also, it’s the co-signers who are taking on the brunt of the risk because they are responsible for the payments if the person they’re co-signing for can’t afford them. They’re both equally responsible. Therefore, the co-signer’s credit and their ability to borrow on their own can then be impacted if the borrower misses a payment.
For those willing to take on the risk, co-signing offers a path to homeownership for some.
Alternatives to cosigning a mortgage
Down payment help. If you don’t want to cosign a mortgage, then you can help your kids with down payment or closing cost assistance.
Buy the home yourself. Some parents buy the homes themselves, and then rent out the home to their adult children. Once the child has gained enough credit or down payment money, they can buy the home from the parents.
Give a family loan. If you have enough cash to buy the house, then do so and set up a loan directly with your adult child.