What are the consequences if your daughter and her husband want to buy a home, but recently asked you to “Co-Sign” on the loan?
There’s nothing wrong with helping a family member or close friend with buying a home. However, co-signing on a loan should be done with great care and knowledge of the consequences. Co-signing means that you are extending your personal credit for the benefit of someone else. Problem is, if the borrower defaults, the lender will look to you for full repayment. So you’re not really a co-signer, you’re a co-debtor. Here are a few tips that may prove helpful when co-signing:
Although you’re co-signing, make sure your co-borrower is putting cash into the transaction. The more they put in, the lower your risk.
Obtain a credit report on the person you’re co-signing for, even if it’s another family member. If they’ve defaulted on other debts, there’s a good chance they’ll default on the debt you’re co-signing.
Ask the lender to release you from the loan when the principal balance is reduced to a certain amount.
Examine how your credit rating and ability to borrow will be impacted. Co-signing on a loan can sometimes impact your ability to get financing if you need it.
Make sure your name is listed on the deed as a co-owner. And by all means, speak with a good real estate lawyer.
If your son or daughter separate, who owes what on the home? You could end up buying out one or the other.
If the home is sold, will you share in any appreciation or gain in value?
These are only a few of the consequences let alone the dis-harmony between families or a friend. I have advised and helped many families over the years, so not only is a competent lawyer and lender required, but a real estate person with your interests in mind.
Let me share my experience with you.