On the Dotted Line: Co-signing a Mortgage for Your Children
I know this financial guy so I posed the question to him: “What do you think about Co-signing a mortgage for your children?” His stunned silence spoke volumes. You could see him struggle with the best way to ask me if I had suddenly gone insane.
To review, a mortgage is a long-term loan. It involves your creditworthiness and of course money. Even if the mortgage is a primary one, the decision is not an easy one to make. Yet Co- signing a mortgage for your children can double or triple the complications that result with this financial undertaking. So I rephrased the question. “Would you Co-sign a mortgage for your children?” His answers are paraphrased below but should provide some interesting considerations for any parent (or grandparent).
Personal Emotional Wherewithal
We all want the best for our kids. We usher them through the early part of their lives, providing all sorts of support, both financial and emotional. But at one point, we cut, or attempt to cut the financial ties while maintaining the emotional bonds. This, he tells me, is no easy feat.
Most parents reach a point where they begin to see a future that might involve a kid-free lifestyle, a relaxing retirement, or even the benefit of simply knowing that the tough part is behind you. But the financial headwinds our children face are unlike the obstacles our own lives placed in front of us. The college debt they carry, the soaring costs of rent, and of course, the need to balance those obligations with a job that allows ends to be met make that first attempt at financial freedom less likely for this generation.
Your Financial Situation
Your financial situation needs to be stellar. Your credit should be beyond reproach. You should have saved enough for your retirement (something he says should be at the forefront of every decisions you make once the kids are grown, and he adds quickly, throughout your entire adulthood). And lastly, you need to be able to take on the cost of that second mortgage (their first) without disrupting your credit or retirement.
The Important Conversation
No one knows your child the way you do. Beyond your reasoning for wanting to undertake something like this (he says that love is not enough of a reason), there has to be some defaults in place. Those defaults depend on conversations that step beyond the parent/child talks that are often seeded with advice and guidance. You will need to speak with the same way you would a business partner. In fact, the contract should be structured as if you were entering a business transaction with someone other than a blood relative.
The bottom line though, and he stresses this point: Get a partner. Your spouse or financial advisor or both is best. Consider a will for your child to cover the cost of the mortgage. And of course, consider a time frame for when they can refinance the loan and remove your name.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
Mobile: 541-420- 3725 | Mobile: 541-420- 4018 | Fax: 541-593- 5123
Licensed in Oregon