Can a parent cosign on a mortgage? may be a question that an adult child with bad credit or limited credit is considering while looking at financing options.
Can a Parent Cosign on a Mortgage?
A parent can cosign for a child’s mortgage as long as they have good credit. Due to a lack of credit history, the child may not be able to qualify for financing on their own. Someone who just graduated from college or who hasn’t worked for very long might not have had the chance to build up enough of a track record to convince a potential lender that they’re a good credit risk.
If the adult child has credit issues that prevent them from qualifying for preferred mortgage rates, that is another situation where a parent might be asked to serve as a cosigner on a mortgage. Asking a parent, sibling, or family friend to cosign the mortgage is an alternative to accepting a sub-prime mortgage (with a high interest rate) or being rejected financing outright.
Advantages of Adding a Cosigner
By including a cosigner on the mortgage documents, the borrower may be able to obtain a larger mortgage than would otherwise be possible if their application were being evaluated on an individual basis. When determining how much money can be advanced for the mortgage with a loan from the Federal Housing Administration (FHA), the cosigners’ combined income can be taken into account. With this kind of loan, the cosigner is also not required to reside in the property that will be mortgaged.
The cosigner must reside on the property for the lender to accept them if the mortgage is not an FHA loan. Additionally, the full income of the cosigner is not taken into account when calculating the mortgage. Only half of the cosigners’ income is represented in the figures in this case.
Disadvantages of Cosigning a Mortgage
It’s incredibly kind to cosign a mortgage for a child or another individual who cannot obtain financing on their own. However, the cosigner must carefully consider their decision before moving forward.
If the primary mortgage holder defaults, the cosigner is responsible for making loan payments. The lender looks to the cosigner to pay if the other borrower misses a payment. The cosigner cannot be released from this obligation unless the loan is fully repaid or the lender agrees to strike their names from the mortgage (though this latter possibility is unlikely given that the primary borrower was unable to secure financing on their own).
A parent who is thinking about cosigning for a mortgage must also be aware that the loan’s total amount will be regarded as his debt as well. Making mortgage payments for a child who is incapable of doing so may make it more difficult for the parents to obtain their own mortgage or to be approved for other loan products.
The parent’s financial situation may suffer if the child actually defaults on the mortgage and the parent is forced to continue making the payments. The cosigner’s credit score might suffer if he makes payments late or skips them entirely.
The relationship between the two parties may deteriorate when a parent cosigns a mortgage on behalf of his or her child. The parent might be tempted to offer advice or eavesdrop on the adult child’s financial affairs rather than letting the child stand on his or her own two feet.
Can a parent sign as a cosigner on a mortgage? The answer is yes. Though it might not be the best move for him or her to make, Related & Popular.
FAQ
Can a family member cosign my mortgage?
A co-signer, who is typically a relative, friend, spouse, or parent, agrees to assume financial responsibility for the primary borrower’s loan should they become unable to make payments. Co-signing a loan is a legally binding agreement, not just a good character reference.
Can a parent cosign a mortgage for a child?
Can I cosign a mortgage for my child? Yes. You may be able to cosign for your child’s mortgage if you have good credit and a sufficient income.
Can a parent be a co borrower on a mortgage?
You can add up to three co-borrowers to some types of home loans, but the majority only allow for one. Your co-borrower can be either a non-occupying co-borrower or an occupying co-borrower, such as your spouse, parent, sibling, family member, or friend.
Can my mom cosign my house?
In order to co-sign a home equity loan for their child, parents must accept joint responsibility for the debt. Before signing as a co-signer on a child’s home equity loan, it’s crucial to agree on how the debt will be repaid.