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