When rising interest rates When Slowdown in real estate sales, homeownership remains out of reach for many potential buyers. According to the National Association of Home Builders, in the second quarter of 2022, affordable housing It fell to its lowest level since the 2007-2009 recession.
According to the NAHB/Wells Fargo Housing Opportunity Index, only 42.8% of new and existing homes sold from early April through the end of June were affordable for families with an average U.S. income of $90,000. This is down significantly as 56.9% of homes sold in the first quarter were affordable to the middle class.
One option to improve affordability, especially for those who don’t have enough credit, is to have moms and dads co-sign mortgages. According to data prepared for The Wall Street Journal, many parents are happy to do so.
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The online loan market reports that 57% of parents are willing to co-sign their children’s mortgages and 7% have done so in the past.
For parents with a household income of $100,000 or more, the number of previously signed out increases to 17%. But for parents approaching retirement and likely to live on a fixed income, a co-signer may not be wise. LendingTree reports that 45% of parents who co-signed a mortgage for their children regret doing so.
“Mortgage co-guarantors take full responsibility, but you are not the owner of the home, so if your child stops paying, the lender expects you to pay that loan, but you cannot list the home. There is no way to force or coerce you into doing so,” said Mari Adams, a certified financial planner in Boca Raton, Florida.
Even parents who discuss exit strategies with their children should make a note of it by having them refinance in a year or two when they are likely to be making more money or have more established credit. may cancel. “The 2008 housing crisis taught everyone why this is not a good idea,” he said. “Nobody was able to do a re-examination because either the house didn’t do an appraisal or the child’s credit deteriorated.” is strongly recommended to clients.
Even under the best of circumstances, co-signing a mortgage is risky. As parents reach retirement age and are trying to control their expenses, they may be forced to pay for another home if their children become unemployed or unable to work. “You may have to spend less, travel, or withdraw money from your own home to make ends meet,” said Jamie Hopkins, managing partner at financial services firm Carson Group. says. I am willing to take that risk.
Karen Kasson Wheatley and her husband, John Wheatley, both 65, recently helped their daughter buy a two-bedroom, one-bathroom condo in South Boston for $590,000. Her 23-year-old Caroline Wheatley uses the inheritance for a $178,500 down payment and her parents qualify because they only work part-time while she studies nursing. Because she co-signed her 30-year fixed-rate mortgage for $411,500.
“It’s a family tradition to own a home early,” said Karen Wheatley, who helped her mother buy her first home after college. “I would rather pay the mortgage than pay the rent.
Yasmeen Dahdoul, a 35-year-old hairstylist, recently bought a $1.1 million four-bedroom home in La Habra, California with the help of her parents. Since she is self-employed, she couldn’t qualify for her, so her parents signed her home loan of $550,000 and gave her the rest as her down payment. . They had also previously helped her brother buy a house.
“My parents and I had a very difficult conversation,” she said. If my parents hadn’t believed in me, I wouldn’t have been able to get it.
If you’re interested in cosigning a mortgage to help your child buy a home, consider the following:
Consignment and guarantee are different. Parents acting as co-borrowers have the same responsibilities under the loan as their children, according to David Reiss, a professor at the Brooklyn Law School who specializes in real estate. They are responsible for payments when they are due and can be sued by the lender for nonpayment if the loan is overdue. However, a parent acting as a guarantor has a different legal relationship with both the lender and the child. . Also, if a parent has to repay a loan, the parent can ask the child to repay it under the legal principle of subrogation, Reese said. Whole Lender.
Explore other options. Parents can help their children in other ways instead of assuming the risks and liability of joint and several liability. Hopkins said parents can become co-investors/owners of real estate rather than passive co-signatories. Financial planner Adam said he encourages clients to give gifts to their children as a down payment. Anyone can give gifts of up to $16,000 annually to another person without reporting them as part of the annual gift tax deduction. Merrill Lynch offers a program called Custodial Parents. This allows families to cash out a down payment on a family home using eligible securities as collateral. This is an option for those who want to help their children buy a home but want to keep their assets invested.
Consider significant drawbacks. Understand the risks, not only to yourself, but to your children. “I can’t say ‘financially independent’ when someone else is taking out a mortgage,” Adam said. “Children become financially destitute when their parents allow them to live a life they can’t afford.” Also, make sure your parents are on board with you. Spouses are often not on the same page when it comes to debts and debts, or gifts to children and grandchildren.
Have you co-signed or considered a mortgage for your child? Why or not? Join the conversation below.
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