Parents of adult children know that looking after your kids doesn’t end when they turn 18. While no longer responsible for your child’s decisions, you can be responsible if you start co-signing mortgages to help your kids buy a home.
If you’re thinking about doing that, you’re not alone. Join the club of parents who are the Bank of Mom and Dad. Home ownership is beyond the reach of many young people these days and wanting to give them a hand up to get into the marketplace is very common. You’ve taught them to be independent but when it comes to buying a home you’re enabling them in a good way. Just make sure you know what you’re getting into as a joint borrower.
Know your responsibilities
Whether it’s a credit card, line of credit or for purposes of this article, a mortgage, you are not just co-signing an agreement, you are actually the joint borrower. You are just as responsible for making payments or paying off the balance of the mortgage as anyone else who signs the agreement.
Know your rights
As a co-signer, you have the right to receive all the same information from the lender as your kids. Any updates, renewals, notices, balances or notices of default (heaven forbid) must be made available to you. You can elect not to receive them if you want. Some parents think ignorance is bliss, but perhaps not in this case. Keeping track is in your best interest.
Trouble shoot potential issues
Don’t just show up at the bank to sign a document and leave. Before you sign on the dotted line, think about the level of involvement you want to have in the transaction and take these points into consideration:
- Are you in a position to make payments if your child can’t? The lender pay say that on paper you are financially in a position to absorb this debt, but only you know if that will adversely affect your future plans. Will you need to borrow money yourself, perhaps for a car?
- Do you want your credit rating jeopardized?
- How will you react if debt collectors start hounding you?
- How will a default affect your relationship with your child?
What else should you be aware of?
You might want to see if your child qualifies for or can afford insurance should something prevent them from making payments. Not just sheer irresponsibility, but illness or even death. He or she could make you the beneficiary on a policy so that you, as joint borrower, will be able to extinguish their debt.
If your child comes into money by inheritance or winning the lottery by some fluke, and pays off the mortgage you will definitely want confirmation. Request a discharge letter.
This doesn’t have to be forever
With people moving on average between three and give years, it’s highly likely that your child might sell the home you’ve helped him purchase. By that time, the value of the home may have increased to the point that getting a new mortgage on his next purchase may not require your help. Or when the term of the mortgage ends and must be renewed, your child’s financial picture may have improved and you can apply to be removed from the loan agreement.
You have, after all, agreed to just help.