Parents Co-Signing on Home Loan

Updated on June 12, 2009
S.B. asks from Aurora, CO
5 answers

Me and my husband are looking into buying a home. We can not qualify with his credit, but we can with mine and a co-signer. My parents are more then happy to do it for us. But I want to make sure I'm protecting myself from making a bad investment choice.

Here are my choices...... using the money we have saved for the downpayment and paying off ALL of his debt and waiting 1-2 years and see if we can qualify. Or Just having my parents co-sign and try to refinance it 2-3 years after we finish paying off all of his debt.

Theres huge incentive to buy before July as you all know, thats a big perk. But in having my parents co-sign I would loose out on first time buyer program and also whatever else profit they see come their way with technicially owning 50%. When they first approached me about this topic it was more of an investment for them and not me from how I was hearing it. When I think of owning a home, I think of an investment especially for me since I'm making the payments 100%. Do they have rights to make profit? Is this just typical when someone co-signs? I'm confused what to do, but really dont want to miss this opportunity to buy something when things are so cheap and interest rates are low. I would love to hear all of your input. I guess I'm just wondering if they co-sign what entitlement do they have and would I set myself up? Should I have a contract set up between me and parents? Should I just wait untill we can do it on our own? HELP Moms! :)

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answers from Denver on


Here is my opinion, wait till you can do it on your own. We have owned 2 town houses in the past, with no co-signers. We put a house under contract I lost my job one month before we bought the house and we decided to still buy it with my husband and his dad on the loan. We thought we would refinance as soon as we could. Now, we have been in the house for 6 years, perfect credit and now we are upside down in the house due to the economy and we still have the co-signer. And we also have the added stress of what if something happened and we could not make a payment, it would not only ruin our perfect credit but also his parents.

That is my story and opinion just something to throw around. Do what your gut tells you too!




answers from Denver on

Most financial advisors I've ever heard are against co-signing. I'm not sure all the reasons why, but people I know who have done it wish they never had as it ruins the relationship, even among close family members. What incentives are there before July? All I'm aware of is the new home buyer rebate before Dec. 1. My gut would be that it would be better to wait it out and do it on your own. GL!



answers from Salt Lake City on

I would wait. "Co-signing" on a home is really just both of you buying it. They would have all rights to it just as you would. If you aren't comfortable with that situation, then I think you should wait. Maybe look into a "Lease-to-own" situation. There are a lot of them popping up out there. An owner sells you the house on what is called an Option To Buy. You pay a down payment and then monthly payments to the homeowner. These contracts are usually about 2 years long. At the end of that time you get a real mortgage from a bank and pay off the balance to the homeowner. Then the home is yours. Something to look into.
Take care,



answers from Salt Lake City on

Personally, I would wait until you can do it on your own. Unless your parents are willing to just buy the house right out (not co-sign) and you rent from them or something with the intent to buy later. But even that is risky, in my opinion. I just feel that, no matter how good the relationship seems to be, there's just way too much risk in co-signing or any other kind of financial partnership between close friends or family. Not that anything will happen, but what if it does and you lose the relationship because of it? There will always be some kind of perk or benefit to a first time buyer, and there's always some kind of new incentive to "stimulate the economy" somehow. It's just a matter of waiting until the right time to buy. In this case, it doesn't sound like the right time. Get out of debt first. Wait until you and your husband can do it on your own. Research ways to build your own credit so you won't require a co-signer. I know that's kind of a hard thing to do. We all want our own homes and our own things, and waiting is hard for most of us. But sometimes it's just the best thing all around. Don't risk your relationship with your parents by having them co-sign. And as far as them making a profit? I'm not really sure how that works, unless they're overcharging you somehow for the monthly payments as sort of an interest plan or something. If they're in it for the investment rather than just to help you out, that raises a red flag to me. It could just get sticky. That's all I'm saying. Good luck with whatever you decide! It's a difficult decision...



answers from Pueblo on

I don't know anything about cosigning and rights, but I think if you have the money to pay off the debt, do that first. If you have credit card debt or any kind of loans, the interest will be far higher than a home loan. When you don't pay it off, you are racking up that interest.

If you have $1000 in credit card debt at 15% interest, you are paying $150 a month in interest alone. If your hubby has bad credit, is it safe to assume the interest rate is higher than 15% and the debt is higher than $1000? It's a great feeling to get that debt out from under you. Then you can quickly save that money you are not paying in interest for a down payment! Just remember to pay off the credit cards and not to close the credit card accounts as it helps your debt to income ratio.

It's wonderful to have a dream about owning a home one day, but in the two houses I've bought, we needed money to put in curtains, fix the air conditioner, put in an alarm system, maybe paint a room... In other words, it takes money to move in to a house.

If you do choose to cosign with your parents, I would seek an attorney's advice (with your parents present) and come to an agreement about what exactly the deal would be. Then sign papers to this effect so no one can say something else at a later date.

Good luck!

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