Parents should think twice before co-signing for a mortgage
Co-signing for a mortgage is a great way for parents to help their kids buy a house, but Mom and Dad should first consider the potential pitfalls.
Q. My son and daughter-in-law have asked my husband and I to co-sign their mortgage application so they can buy their first home. Do you think we should co-sign?
A. The decision to co-sign is, obviously, entirely up to you, but do not do it until you first consider some possible consequences.
When you co-sign a mortgage application, you become legally bound to make the monthly payments on the loan if the other borrowers — in this case, your son and daughter-in-law — cannot or will not make the payments themselves.
If you cannot make the payments, either, the lender can foreclose on the property and may even be able to sue you to recover any money that the lender may have lost.
I am sure that your son and his wife are not planning to purchase a house and quickly stop making the payments, leaving you to foot the bill.
Yet, I also know several well-meaning parents who co-signed for an offspring’s mortgage and then were financially ruined by circumstances they could never have foreseen — including the unexpected loss of a job that left the kids unable to pay, or a marriage that ended in a contentious divorce a decade or two later.
It is also important to realize that co-signing for a loan can hurt your own borrowing power in the future. That is because you will be responsible to repay the money if your kids do not.
To illustrate, let us say that you co-sign for your son’s mortgage today but then decide to buy a new house or car for yourself a few years from now. The lender who reviews your future loan application might consider your current legal obligation to repay your son’s debt and reduce the amount of money you can borrow.
I am certainly not trying to discourage you from helping your son and daughter-in-law from buying their first home. Just make sure you understand all the ramifications of cosigning for their mortgage.
REAL ESTATE TRIVIA
A survey conducted by Realtor.com found that a staggering 52 percent of Americans who bought their first home in 2020 said they got help with their down payment from family or friends. The No. 1 source of that help came from the buyers’ parents.
Q. Do banks still offer “zero-down-payment” mortgages?
A. A few do, but they are hard to find. Most lenders who provide them charge aboveaverage interest rates because there is a greater likelihood that the borrower will default.
There are a few exceptions. The most important is for veterans of the U.S. military, who can purchase a modest house at a good interest rate, provided that they were honorably discharged.
Call the U.S. Department of Veterans Affairs toll-free at 800-698-2411 or visit the federal benefits.va.gov website if you think that you, your spouse or a child may be eligible.
The Federal Housing Administration does not offer no-money-down loans, but it will ensure that payments will be made by homebuyers who make a down payment as small as 3.5 percent of the home’s purchase price.
The federal Department of Housing and Urban Development operates the FHA. You can find more information about its various lowdown-payment programs by visiting hud.gov or by calling the agency at 800-225-5342.
Q. Our youngest son moved out of our house in September to attend college, so my New Year’s resolution is to convert his former bedroom into a “man cave” for me and my buddies. Would I save money by buying a new TV for the room now, or should I wait until the Super Bowl comes around?
A. Assuming that your wife has given approval to your man-cave plans — and that is a big assumption on my part — it would probably be best to buy the television now rather than waiting until a few days before the Big Game on Feb. 7. That is because retailers today are anxious to dump their unsold holiday inventory and clear space for the new models that will be unveiled at the giant Consumer Electronics Show on Jan. 5.
I previewed several of the 2022 sets, and they are not much different than the 2021 models (except bigger and a slightly better resolution). Look for savings of 25 percent or more on the 2021 lines in the next few weeks, which will give you plenty of time to install a new television before the Super Bowl arrives in early February.
January also brings the start of the traditional “white sales” season, when retailers offer bedroom, bath and kitchen linens at discounts of 30 percent or more.
John Wanamaker, considered by some as the originator of our nation’s first department-store chain, is also believed to be the creator of the first “white sale” in 1878.
Wanamaker suddenly discounted prices on thin bed linens, which only came in white back then, because they did not sell very well in his chilly winter hometown of Philadelphia or in his handful of other stores in the Northeast.