You’ve Been Asked: Should You?

 Everyone needs a little helping hand now and then. From the tiniest of favors to the biggest of asks, at some point each of us will be asked to help out a friend or family member. But as it relates to buying a home, a request for a little help falls into the “biggest” category.

The request can be to help out with some down payment money or funds for closing costs. There are multiple moving parts when buying a home and getting the financing lined up is one of the more detailed. Certainly not as fun as driving around and looking at homes for sale in person. Or maybe perusing online just a little when tinkering with the idea of buying a first home.

One of the more important tasks lenders take is to make sure the home they’re buying and the home loan they’re applying for is to determine affordability. Affordability is determined by comparing monthly credit obligations, including the new mortgage, taxes and insurance with the gross monthly income of all parties that will be on the loan. Sometimes though, especially for first timers, they might be a little short on the income side. This is where parents are often asked to help qualify by co-signing on the mortgage.

But should you?

When co-signing on a home loan, the prospective lender will review your income as well, along with the buyers’. The lender will review your gross monthly income and all of your debts as well, then add everyone’s income and debts together to arrive at a (hopefully) qualifying amount.  But some careful consideration needs to be done before moving too much further.

Will you have to step in if the buyers can’t make the monthly mortgage payment? This is the biggest risk because yes, you will be required to make the missing payment. After all, you co-signed on the note declaring that you would do so. This is why lenders add up everyone’s income and debts when reviewing affordability. If the buyers need some help with a payment, be prepared to write that check. If you’re not comfortable paying for your mortgage plus someone else’s, you might want to have the buyers rethink their purchase plan.

If the buyers need some help qualifying due to income, that could be a red flag. Maybe they’re buying when they’re not yet ready or are biting off more than they can financially chew and should perhaps find something a little less expensive. It’s a good thing to help out, but know exactly what you’re getting into.

Got Questions?  Email us at Info@EstatesByTheBeach.Com

WRITTEN BY DAVID REED

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