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SHOULD PARENTS CO-SIGN MY MORTGAGE?
A common dilemma faced by many...
Below is a recent inquiry we received from one of our visitors, and our response...

 

Dear StarLoanServices.com,
I am a college student and am interested in buying a home, but I have no credit. I have $7500 to use as a down payment. Do you think I can get approved for a mortgage if my parents co-sign for me?

Regards,
Erick Goldman

Dear Erick,
There are many great reasons to buy a home as a student. Developing equity in a home vs. the cost of living in a dorm room or paying rent for an apartment can be a financially savvy thing to do. Learn more about renting vs. buying.

You can develop a credit history that will make it simpler for borrowing in the futures. You will also earn any appreciation on the property and you may be able to utilize interest rate deductions on your taxes.

There also many good reasons why your parents may be willing to co-sign your loan to assist you in getting a mortgage. They'll be assisting you build a credit history, and help you qualify for financing that you would not be able to obtain on your own.

By agreeing to co-sign your loan, your parents are guaranteeing to the lender that they will step-up and take over payments if you can no longer make them, or neglect to. The payment history for this loan will become part of their credit history and be reflected on their credit reports.

If you ever declare bankruptcy or if the house is sold in foreclosure, your parents will be responsible to make the lender whole on the loan. We feature an entire section on co-signing that you and your parents should review to ensure that you both understand the risks involved.

 

There is the possibility that you may not be able to use the interest rate as a tax deduction, but your parents will. If this is the case, it will likely make more sense for your parents to take out the loan in their names, with you renting to them. Doing this will not enable you to improve your credit rating. However, you may be able to lower the cost of housing while you are in college.

Determine what your ultimate goal is in owning a home while you are in school. If it's investing in real estate and building a credit history, then renting from your parents makes no sense. If you are looking for low cost independent living, you should discuss with them about being real estate investors instead of just co-signors on your mortgage. If you intend on both being owners, then get professional tax advice on how to arrange the deal.

Finally, take a look at the first-time home buyer programs offered by Star Loan Services to see if you can qualify for your loan without having your parents as co-signers.


Related Reading:
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Steps to Take Before Applying for Loan
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-Managing Your Mortgage



        

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