Considering Helping Your Child Buy a Home? What Parents and/or Co-Signors Need to Know

By
Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI
https://activerain.com/droplet/4wWx

 

 

Considering Helping Your Child

Buy a Home?

What Parents and/or Co-Signors Need to Know

   

Click to Contact Gene Mundt, Mortgage Lender   Within the current housing market, there is great opportunity to be found, especially if you're a first-time home buyer.  Home prices are down ... lower than they have been for almost an entire decade.  And Interest Rates??  The cost of borrowing, in regards to Interest Rates, is at historic lows ...   truly a gift, should you be able to take advantage of them.

 

    With all the positive opportunities that exist, many buyers, along with their families, are looking for ways to take advantage of these current positives by buying properties with the assistance of Co-Buyers/Co-Signors.  Most considering this path to home ownership are parents and/or relatives.

 

     As a mortgage lender, it is not uncommon for me to receive  questions regarding this method of home buying.  "Co-Signing" is happening more and more often.  In mortgage terms, this method of buying/borrowing is called being a "Co-Mortgagor" ... a fancy term for "another borrower".


    This practice is typically utilized when the "non-occupying" Co-Borrower (let's just say a parent) is the stronger applicant on a mortgage ... and his/her income, credit, and assets make for an approvable loan when the "main borrower/buyer" is not able to qualify for a mortgage on their own.  Put another way, the child in this scenario is buying their first home, often has adequate credit ... but lacks the job history or income to qualify on their own. 


    Considering the (child's) parent's income and credit and debt, makes the loan approvable because the parents' "vitals" help the numbers ... meaning the debt-to-income ratios ... needed to reach the approval level. With FHA, the down payment requirement is only 3.5%, and the Borrower (who MUST occupy the purchase residence) gets as good of Interest Rate as if they had borrowered on the mortgage alone.


    Obviously this is great for the son/daughter, but what about the "Co-Signor, Co-Mortgagor, Parent" involved?  The fact is, they will share the same debt and note responsibility as the main applicant.  That debt/responsibility will appear on their credit report as their mortgage obligation.  If the child misses a payment, the parents (Co-Signors/Co-Mortgagors) credit report will show as having a late payment.  A very valid reason for all parties involved to give this great consideration prior to agreeing to start the mortgage process.

 

Click to Contact Gene Mundt, Mortgage Lender     Consider this though ... Co-Signors/Co-Mortgagors  (in my most recent Co-Signor/Co-Mortgagor case)  were considering buying a home on their child's behalf, because they didn't think the child could qualify on their own.  These parents were fully-prepared to put forward a 20-25% down payment, purchase the home in their own names, and then move the child in as a tenant.  The ability to become Co-Signors/Co-Mortgagors changed the financial scenario they received significantly for them and their child.

 

     How did it change?  What are the differences to be found within the two methods of home buying?

 

     The biggest difference is in how the bank perceived their upcoming ownership.  Parents that just buy a property outright and rent it to their child are considered investors by the bank lending moneyInvestors pay higher interest rates to borrow money (typically a minimum of 3/4%) ... and/or their Closing Costs rise several thousand dollars.  Why?  Because the bank considers this type of loan a higher RISK because of the "occupancy" status of the property.

 

     Now you know a bit about the ins-and-outs of Co-Signing/Co-Mortgaging.  But if you're a parent, or someone considering Co-Signing/Co-Mortgaging, you're going to need to know ... where and how do you start the process?  What financial documentation will be expected from you?  What funds will be subject to verification?

 

     Much of the process of mortgage financing will be the same for Co-Signors/Co-Mortgagors as for the actual resident(s) of the property. A handy list of those financial documents needed for mortgage application can be found via my website, by clicking ...  "HERE".  

 

      What is probably the most common concern or question I hear from Co-Signors/Co-Mortgagors (parents), is ... "How has the mortgage process changed since I last participated in it"? 


      There is no denying the truth.   For a great many parents the mortgage process will be unrecognizable from their own prior financing experiences.  And admittedly, the requests for documentation and verification will seem a bit overwhelming. 

 

     But documentation and verification is what is required to move the modern mortgage process along to successful completion.  Underwriters and end-lenders will not be deterred from it.  Co-Signors/Co-Mortgagors must be prepared to have monies/accounts/downpayments verified, along with their employment, credit/debt, and more, just as their child will. 

 

     Now, more than ever, the mortgage process itself is specific to those borrowers taking part in it ... so individual and personalized instructions regarding your financial scenario will be provided by your  mortgage lender.  Listen.  Learn.  Comply.

 

    If you do so, those requests are completed in a timely fashion, and  the lender's  instructions are followed, Co-Signors/Co-Mortgagors can help their child successfully establish credit, obtain historically low interest rates, and buy a home at very friendly housing prices. 

 

     Should this be a financial step you are considering within your own family ... contact me, or your own mortgage professional, to obtain information specific to your needs. 

 

     Becoming a Co-Signor/Co-Mortgagor for your child could be the gift that sets them down the path to a healthy financial future.

 

 

 

      *  For personalized mortgage information and service regarding your family's Co-Signor/Co-Mortgagor options in Will County and the entire Chicagoland area, please contact me.  I will put my 35+ years of mortgage experience and expertise to work on your family's behalf.

     I can be contacted through any of the following:

Direct:  815.524.2280     Cell/Text:  708.921.6331

Email:  gmundt@goapmc.com

www.genemundt.com

eFax:  815.524.2281     Skype:  630.219.1316

Click here 4 a:  NO Cost NO Obligation Mortgage Consultation

 


 

    

 

    

 

    

 

    

    

 

    

 

     

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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

Your Referrals & Testimonials are Always Greatly Appreciated! 

 

 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Joy Daniels 10/03/2012 12:59 PM
  2. Jeana Cowie 10/03/2012 01:43 PM
Topic:
Home Buying
Location:
Illinois Will County Plainfield
Groups:
Realtors®
Mortgages
Chicago Area Real Estate BUZZ!
1st Time Buyers
Condo Specialists
Tags:
investment properties
firsttime home buyers
parents helping child buy a home
cosigning for a mortgage
comortgagors

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Show All Comments
Rainmaker
544,206
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Gene, co-signing for any of my kids isn't an option. Not only could I not (or want) to do it for all of them, but it puts me at a massive financial risk. Their loss of job, health issues, etc. could be devastating to everyone.

Feb 25, 2012 03:08 AM #10
Ambassador
760,298
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Gene this is good information for those considering co-signing as an option.  But I sing in the other choir (Karen Fiddler and Eric Michael), it's just not an option and an overall bad idea.  Personally I think it's a lot to ask and to allow someone to co-sign on a mortgage (a 15, 20, 30 year commitment).  Gifting the down payment is a far better solution in my opinion.  Additionally if the primary person that will be living in the home cannot qualify for it, then perhaps they should delay a purchase until they can.  Of course if the parents are wealthy and/or willing then this arrangement works just fine.

Feb 25, 2012 03:18 AM #11
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

As a note to those reading this post, I am simply informing my readers that this is one form or option of buying a home.  For some, this is not a good option or anything to be considered.  For others, it's a perfect solution.  It's why I state within my post that mortgages have become very specific to the individual(s)' borrowing.  I always perform a thorough analysis of all the options that are available to those considering the mortgage.  Discussion follows with all pros and cons examined.  But in the end, the final decision must be theirs.  Should buyers be looking for all their options and the possibilities that lie before them .... co-signing/co-borrowing is just one option that may be in the mix.  What I see happening in many instances where co-signing/co-borrowing is utilized ... it is used only in the short-term, until the child/main borrower can mortgage on their own.  Again, no overt promotion intended ... just educating in regards to this mortgage option ...

Gene

Feb 25, 2012 03:43 AM #12
Rainer
264,953
Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO
877-251-9709

Great post Gene. Good education and info for borrowers, co signors, parents and kids. Thanks for the great tips!

Feb 25, 2012 04:20 AM #13
Rainmaker
911,457
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

I think it's great when parents are able and willing to help their children.  Your post has great information, I am definitely bookmarking it.

Thank you! 

Feb 25, 2012 05:41 AM #14
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Thanks, Richie!  Taking this action can be a very good investment for parents.  There are precautions that should be taken, esp. with family involved ... but for the right people, it can be a very good solution to a financial problem ...  we'll see about future installments ...

Lenn:  You're right ... the couple of fiance scenario is something being seen often.  I have two such transactions going right now.  They can be sticky, should the couple not be on the same page ... or if someone's credit is the direct opposite of the others.  Never dull transacting these purchases, either from an agent's view or a lenders.  I'll be working on that post, as you suggest!

Margaret:  Good to hear you're having that discussion about purchasing in this market.  As you say, VERY tempting prices.  If a young person can take advantage in some way of this market ... it's at least worth considering ALL options.  Let me know if I can answer any questions for you ...

Sandy:  You point out something VERY important.  This type of mortgage transaction has to be a good fit for all parties involved.  Something to consider, but not always the perfect fit.  Hopefully an analysis is done and the right fit is revealed ...

Nancy:  True!  As with most things, there is both pro and con.  A knowledgeable and experienced mortgage lender will help the parties involved figure out what is right for them moving forward ... and then help them attain that.

Karen:  I applaud you trying to assist your children.  Only YOUR family can know what is right for you.  But for others, I will say that there ARE benefits to be found.  It just depends on the individual family's relationships and financial scenarios.  For some, you're right ... it's not good.  For others, it is the opposite and is the right financial fit.  Again, it depends on the individuals .. and it's my responsibility as a mortgage lender to help find ALL their options available to them.  Then ... they decide how to move forward ...

Norma:  I can only imagine that it's definitely true in the LA market ... down payments could be a real challenge.  But I fear that is a growing issue in many markets.  This post covers just one option that could prove helpful to those hoping to buy .. and their families.  Perfect for some.  Not for all ...

Michelle:  Most banks will ask this question ... and have answered it too, in regards to these "investment" properties.  If you have your family home ... and that which is considered an "investment" ... and hard times befall you ... which are you going to quit making payments on first??  Typically the answer is the "investment" property.  Thus the higher RISK evaluation by the banks ... and the higher rates/costs attached to those types of loans ...

Eric:  Understood, believe me.  And for your family, THAT is the right course of action and right decision.  Others have different financial scenarios or opinions.  For them, it might be a good consideration.  Again, it depends on the individuals involved and their financial/mental scenarios.  It's an option that is out there ... and it's my responsibility to provide possible options for consideration.  Each individual family must decide for themselves the dynamics of their decision and whether it's a good fit ...

Charita:  Although I completely understand where you are coming from in your statement and opinion, I do not and cannot keep viable options for lending from my clients, based on my personal opinions or leanings.  I can express my opinion on the wisdom of proceeding for verifiable facts and reasonings, etc. ... but it must remain the borrower(s)' decision at day's end.   As I see it, for some ... you are exactly right.  The decision to take on this financial burden for a family member would be entirely unwise and a poor financial fit.  For others, it remains my opinion that it CAN be a very good financial move and investment.  Depends on the individuals involved and their personal situations financially and relationship-wise ...

Kevin:  Thanks for the thumbs-up!  Much appreciated.  I'm sure you're more than well-versed on this topic ... we're seeing it more often, aren't we??

Gene  

Feb 25, 2012 05:47 AM #15
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Joy:  Glad you found the post worthy of being a "keeper" for the future .. and hope it proves beneficial to some of your clients.  If I can clarify anything, please shout out ...

Gene

Feb 25, 2012 05:48 AM #16
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Ann:  Oops!  Not sure how I skipped over you, my apologies!  We, as college-parents, thought about doing the very thing you suggest.  Definitely worthy consideration ... given tuitions costs and with most students opting out of dorms in their 2nd, 3rd, and 4th, etc. years.  Have more than one child thinking of attending the same university ... the options grows even more enticing ...  thanks for offering that insight ...  good point!

Gene 

Feb 25, 2012 05:52 AM #17
Rainmaker
820,488
Maureen Bray Portland OR Home Stager ~ Room Solutions Staging
Room Solutions Staging, Portland OR - Portland, OR
"Staging that Sells Portland Homes"

hi Gene ~ You've written a great post explaining how parents can assist their grown kids in buying a home ... I think there's many out there who think it's easy ... but they need someone of your expertise who can guide them through the process so that it's done properly for all parties.  Congrats on the Feature!

Feb 25, 2012 06:04 AM #18
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Much appreciated, Maureen!  And for all types of mortgages and financial situation, it's best to work with an experienced professional.  Hopefully this post starts people thinking ... and inquiring ...

Gene

Feb 25, 2012 07:00 AM #19
Rainmaker
686,759
Hella Mitschke Rothwell
(831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker

Gene: You don't mention how title is held. What happens in a divorce if the "child" is married; and is the other side's parents contributing? What if the parents divorce? Bad things happen to people. A lawyer should definitely be consulted with all the pros and cons. I like the wedding present of the down payment. It's clean and clear.

Feb 25, 2012 07:16 AM #20
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Hella:  I didn't address every issue that could arise within this post ... the post was already quite lengthy.  You're right, details need to be worked out ... and cemented legally, if necessary.  To be safe, I would most certainly suggest that route.  In IL, it's very common that attorneys are involved in transactions, so in our state ... not unlikely that conversation is involved.  As I pointed out in another comment above, this is just one route to home buying.  ALL options should .. and would be discussed from my end as a mortgage lender.  I stick to my position that this needs to be an individually-decided scenario.  Each family has to tackle it knowing all their options and the pros and cons to the individuals involved in the loan.  For some, it will be a good fit financially and personally.  For others, no.  But it is my responsibility to have these conversations with my clients ... regarding all their options.  And their responsibility to educate themselves and make their final decision ...

Appreciate your comment and your opinion.   They may well be a Part 2 on this post ...

Gene  

Feb 25, 2012 09:34 AM #21
Ambassador
2,009,552
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Gene - I think some people who plan to co-sign don't realize that there is a lot of risk/responsibility for them in doing so.

Feb 25, 2012 01:09 PM #22
Rainmaker
598,724
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Gene, Excellent information as always. I have had many transactions with parents buying, co/purchasing or as guarantors.  Many coops here have their own requirements in addition to what the lender may require. Most will only allow co/purchasing if the adult child's income is within the 25% income to debt ratio. The adult child must be working and responsible for the monthly maintenance and/or total housing expenses.

I've had issues with different lenders regarding down-payment gifts for 1st time buyers particularly with new construction. Some lenders want gifts documented - they want to see that it is in fact a gift and not a loan and other lenders won't accept gifts toward down-payment. They want to see that the borrower has saved on their own. One lender told my client to deposit their parents gift in their own account then wait three months and apply for the mortgage so it won't appear as a gift and there won't be any red flags.

Of course, the parents don't want to give the gift until they know the kids are getting the home. Catch 22.

Feb 25, 2012 11:44 PM #23
Rainmaker
1,534,160
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Gene,

This can become a very tricky situation. And, if something backfires, the family problems can become insurmountable.

Brian

Feb 26, 2012 03:43 AM #24
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

With the new disclosure forms and the more advanced mortgage process, that should not be the case any longer.  Plus it points out why it's so necessary to be working with a knowledgeable and experienced mortgage lender, Christine.  The pros and cons are discussed prior to making a final decision ...

Knowing the specific area's and property's/seller/s requirements is a perfect example of what I say to Christine above.  You make a very good and strong argument for that example.  Working with the right professionals pays off in so many ways ... and securing your chances for a successful transaction utilizing these types of loans and gift is just one.  As always, Mitchell ... your comment is enlightening and educational ...

Brian:  Definitely, as noted, not a financial arrangement or situation for every family.  One that should be weighed in detail and at length.  And only one option to consider.  But it can be a viable solution for those that completely understand the ramifications of their actions ... and have the right family dynamics ...

Gene

Feb 26, 2012 07:51 AM #25
Rainmaker
637,821
Don Sabinske
Don Sabinske, Sabinske & Associates Inc. - Zimmerman, MN
Sabinske & Associates Inc.

Well-deserved feature by Gene Mundt. mortgage lender extraordinare.  If I had clients in Chicago, I would definitely suggest Gene Mundt. 

Thanks, Gene.  Bookmarked for my younger (and older) clients.  Probably will reblog it, too.

Feb 27, 2012 07:06 AM #26
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Much appreciated, Don ... and know when I have anyone heading your way, you would be suggested as well!  You are exactly what AR is all about ...

Thanks again,

Gene

Feb 27, 2012 07:22 AM #27
Rainmaker
1,367,708
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

The part about higher closing costs and higher interest rates jumps off the page up there as an investor!

Feb 27, 2012 04:05 PM #28
Rainmaker
1,239,817
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Yes ... the costs definitely do rise, Cheryl.  Still, given the rates at present ... that can be the best option for some parents.  It's all about knowing your options and the dynamics of your family.  There CAN be an option that is available to you, no matter your final decision.

Thanks for commenting ...  hope all is well out your way ...

Gene

 

Feb 27, 2012 11:03 PM #29
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Rainmaker
1,239,817

Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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