Co-signing a mortgage: its effects

June 27, 2006 8:33 PM

How much will my father co-signing on a mortgage help me?

I have just graduated college, and hold a steady job. My credit does not have any blemishes, but from the mortgage calculators I have used online, with my projocted yearly income and estimated debts and a hypothetical down payment, I am told I can really afford no more than $50,000 for a home.

How will my dad, who has absolutely amazing, top-of-the-line credit, be able to help me in simply co-signing the mortgage.

Will the lender essentially give me the same rates they would give my dad?

posted by Scottk to work & money (10 comments total)

Why not get pre-approved and find out?

Getting approved doesn't obligate you.
posted by kindall at 8:50 PM on June 27, 2006

Find out your fico - if it's above 700 or so you should be fine for just about anything. There's many sites online that'll give you these.

I got an 80/20 for a total of 180k having just graduated as well.

A lot of it is based on an income/debt ratio too. If you have a lot of other loans to pay - or a lot of other credit card debt - then you could be in trouble. Basically - if your projected payment is < 40% of so of your post-tax income you should be fine.
posted by jimmy0x52 at 9:09 PM on June 27, 2006

There are two issues here: credit scores and the amount a lender is willing to loan you. If your father co-signs, you'll likely get a better rate (because of his good credit) and qualify to borrow a larger amount (because the lender will look at your combined incomes and debts).

As kindall notes, you can look around and get a few pre-approvals to get an idea of what rates you'll be offered, and what the lenders will be willing to loan you.

I don't know whether having your father co-sign would be a good idea, though. Is your father going to pitch in and help pay the mortgage? If not, you need to realistically look at what the payments will be and figure out whether they will be affordable.
posted by gwenzel at 9:15 PM on June 27, 2006

jimmy0x52 writes: Basically - if your projected payment is < 40% of so of your post-tax income you should be fine

Bear in mind that the 40% number is an absolute maximum. If 40% of your after-tax income is going toward a mortgage payment, that doesn't leave much for all of the other expenses that come with owning a home, let alone any discretionary spending.
posted by gwenzel at 9:18 PM on June 27, 2006

Bear in mind that the 40% number is an absolute maximum. If 40% of your after-tax income is going toward a mortgage payment, that doesn't leave much for all of the other expenses that come with owning a home, let alone any discretionary spending.

Agreed - but this is the criteria typically.
posted by jimmy0x52 at 9:24 PM on June 27, 2006

Scottk, I was once in the same boat as you. 2 years ago, I had just finished school, started a new job and wanted to buy a condo. The condo was worth roughly 3 times my annual salary (just to give you an idea). When I applied for a mortgage, I did not get approved since I had not been at my job for long enough (3 months).

So I got my dad to co-sign the mortgage. Because of that, we were able to get an amazing interest rate. This means the condo is technically owned by my father and myself, although all the mortgage payments and mortgage related information is sent directly to me. Basically, my father doesn't "notice" that he is "co-owner" of the condo.

Eventually, I can buy back my dad's share for say $1.00, so that he is no longer legally bound by ownership. I believe this transaction can be done at any time.

Therefore, I don't see why you're dad can't co-sign the mortgage, help you get a better interest rate, and then sell you back his share.
posted by mcroy at 5:40 AM on June 28, 2006

I don't know whether having your father co-sign would be a good idea, though. Is your father going to pitch in and help pay the mortgage? If not, you need to realistically look at what the payments will be and figure out whether they will be affordable.

Agreed. And do you really need to be buying a house right out of college? Most people rent for a while as they build up income and credit. It seems awfully soon to be tying yourself down like that, both financially and physically—what if you decide you want to spend some time traveling?
posted by languagehat at 6:19 AM on June 28, 2006

(IANAL, but I do residential real estate lending in New York State. Your state's mileage may vary)

Scottk, has your father actually offered to co-sign, or are you assuming he will? Many people are are leery of co-signing loans, since full responsibility for the loan falls on their shoulders should the primary borrower be unable to pay the loan. He may not appreciate you just deciding that he will be your co-signer.

Also, mcroy - Even if your father deeds over his portion of the property to you, so that you are the sole owner of the property, he's still on the mortgage and still financially responsible (the mortgage company can go after both of you if mortgage payments are late). You'd need to remove your father from the mortgage (either by refinancing the property or by asking the bank for permission to remove him from the mortgage) to release him from financial responsibility.
posted by Lucinda at 7:14 AM on June 28, 2006

The only downside to having your dad cosign your mortgage is that it might make you ineligible for certain programs that are available to first-time homebuyers and/or potential homebuyers with a modest/moderate/low income.

Those mortgage calculators are unreliable. Get pre-approved from your local credit union (this is free) OR find a good mortgage broker who knows about programs for people of limited means.

And find a house you want! A good realtor will help you work within your situation, whatever it ends up being. Speaking from my recent experience, once I found THE HOUSE, everything became less hypothetical and therefore easier to deal with.
posted by elisabeth r at 7:48 AM on June 28, 2006

Yeah, if you have good credit, there is a good chance they won't even ASK you what you make.

I was approved for over $200,000... On a job that declared just something like $12,000 or so on taxes for the year previous (yes, it is all true). Clearly, I decided not to buy a home at that point. :-)

(And no, I wasn't going to be raped for interest either, it was at about 5.5% interest or so, although with a mortgage shark company, so the first missed payment would likely leave me either homeless or with a ridiculous interest rate).
posted by shepd at 8:31 AM on June 28, 2006