Some parents don’t think twice about cosigning a home loan just so their kids can get financing for a house. It seems like a no-brainer if it means getting your kids approved that much faster.
But a loan isn’t a grant. It has to be paid back, sooner or later. And if your children are unable to make payments, the burden to cover the loan will fall on you, the cosigner. At this point of your life, are you truly willing to take on that much risk?
Why People Consider Cosigning A Home Loan
I was attending a nephew’s wedding the other day. And in the reception, the band played “We’ve Only Just Begun”. Pretty soon, I was already hearing Karen Carpenter’s distinctly warm and mellow voice in my mind, which then brought back a lot of memories to when I got married.
Most parents of newlyweds fall into this kind of nostalgia. We remember the early years, when money was tight, and we worked hard to buy our own house after a decade of marriage or so. And because it’s instinctive for us to want our children to have a better life than we did, we feel obligated to provide all the financial help so that our kids path to homeownership won’t be as difficult. And this includes co-signing a home loan.
But there is a caveat to this option. Because parents usually have higher income, higher equity, and a much longer credit history, co-signing a home loan makes your kids eligible to a larger loan. A larger loan means being able to buy a more attractive piece of real estate. While that sounds nice, your children might end up acquiring a loan they won’t be able to afford, which can easily spell trouble for you.
Consider the Notice
But let’s say you and your children agree to only borrow an amount they can cover. If you still plan on cosigning, you must review the notice for the loan at the start. The notice will feature details on the terms relating to what you may owe. Depending on where you live, the lender might have the right to contact you first if the other person in the deal is not getting a loan paid off.
The timing for having you cover the loan should also be reviewed. A lender might wait a few weeks or months after getting no payments before the lender actually contacts you to cover the loan.
Think About Your Needs
Look at whether or not you can handle the loan in question. Look at whether you can pay off the debt. See if you can pledge any collateral on the loan as well.
See how much the loan might be worth based on payments that are due each month, the interest rate involved and so forth. The overall terms involved with the loan can vary and must be checked to give you a clear idea of how well you can handle your money.
If you think that these are factors you can handle, then the choice to cosign a home loan is yours to make. What you should never do is simply cosign a home loan without understanding what’s at stake. I’ve known people who should have had a nice life in retirement, only to lose their house because they couldn’t cover the home loan they cosigned.
So while you may want to give the best for your kids, placing yourself in a huge financial risk won’t help you or your kids.Tags: before cosigning a home loan, consider cosigning a home loan, should you cosign a home loan