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

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.

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Mortgage Applications for the Military

If you’re active military or an armed services veteran who’s ready to buy a home, a Veterans Benefits Administration (VA) home loan allows you to transact with no down-payment, no minimum credit score, and a better interest rate than you’d otherwise qualify for because the VA is guaranteeing the loan for the mortgage lender.

You’ll need a Certificate of Eligibility that you can acquire online or through your lender, along with social security numbers, pay stubs and debt obligations to give the lender.

Your loan approval requires an appraisal provided by a VA qualified appraiser. VA and FHA loans have stricter housing guidelines, so if the appraiser notes a health or safety issue that has to be repaired, installed or remedied, and the seller agrees to the scope of work, a follow-up compliance inspection will be necessary to insure the work has been completed.

You’ll have to order your own property inspection to ascertain the working order of the home’s operating systems and installations not obvious to the naked eye, which is a different focus from the appraisal.

Your lender will explain which fees are paid at closing as you’ll be responsible for any fees that aren’t VA-approved. Expect to pay about one percent of the loan as a loan origination fee, plus “reasonable and customary fees” such as hazard insurance, credit reports and other items.

Your VA home loan benefit is not a one-time thing; you can use it to refinance or buy your next home.

For more home tips, follow us on Facebook. Looking for a new home in the Kansas City area? Visit us at BHHSKCRealty.com!