If it looks like a jointly held mortgage will be the answer to getting the transaction done, don\u2019t sugarcoat the facts.<\/p>\n\n\n\n
Younger customers frequently look to parents or grandparents to help them get into a first home. As rising home prices and interest rates present even greater challenges for first-time buyers these days, you may encounter more situations involving co-signed mortgage loans. While it\u2019s not your role as a real estate agent to provide financial advice to your customers or their relatives, it\u2019s wise to be prepared with information if you are asked.<\/p>\n\n\n\n
There\u2019s little doubt such joint purchases are on the rise. Of home purchase loans in the U.S. in 2017, the latest year for which data is available, 22.8 percent included a co-signer, up from 21.3 percent in 2016, according to real estate data company ATTOM Data Solutions.<\/p>\n\n\n\n
Now, what is appropriate to share if your customers raise the issue with you?<\/p>\n\n\n\n
Start by encouraging them to speak to a lender or a financial planning professional and recommend that they take no action until they have that conversation. Once you\u2019ve laid out that ground rule, share a few facts with them:<\/p>\n\n\n\n
First, as co-signer, you\u2019re 100 percent responsible for the obligation. If the person who\u2019s benefitting from the co-signing loses his or her job and can\u2019t make mortgage payments, you\u2019re now responsible for payments.<\/p>\n\n\n\n
Second, co-signing the mortgage will affect your credit. Any delinquency will appear on your credit report. This could affect your ability to get credit in the future\u2014and the interest rate you\u2019ll qualify for\u2014if you apply for a home, auto, personal, business, or student loan.<\/p>\n\n\n\n
Third, even if the mortgage payments are made on time and in full each month, being a co-signer on the mortgage can count against you when you\u2019re trying to qualify for future loans. That co-signed loan takes up part of your debt-to-income ratio and restricts your ability to borrow additional money for your own purchases. For that reason, if you have plans to purchase a new car or home in the near future, talk to the lender about how this act of generosity will change your borrowing capacity.<\/p>\n\n\n\n
Fourth, your debts will be looked at. As a co-signer, be prepared to provide paperwork to meet the same credit requirements that the borrower is subject to. These include bank statements and income tax returns. Your debt as co-signer will be considered in the loan approval process, with the expected outcome that debt and income from two borrowers will lower the debt-to-income ratio for the loan. For conforming loans, Fannie Mae and Freddie Mac will allow a \u201cblended ratio\u201d DTI that combines the incomes of the occupant and non-occupant co-borrowers. This can help when you aren\u2019t going to live in the house and have most of the income, a common scenario when parents help a child buy a home.<\/p>\n\n\n\n
Fifth, as co-signer, consider whether your help is truly helping the buyers. If they could not afford this home without your contributions, is it appropriate for you to offer help? Do they have the cash flow to make the monthly payments? Do you have the capacity to make the payments if they fall behind? Consider whether they are better off in a smaller, less expensive home that they can qualify for on their own.<\/p>\n\n\n\n
As an agent, you know that when affordability worsens, the chance of having a transaction involving co-signers grows. To be clear, it remains the responsibility of the home buyer and the co-signer to talk to a lender or professional financial planner to understand the ramifications. But by sharing these considerations with customers, you can help set them on the right track.<\/p>\n\n\n\n
\u00a9National Association of REALTORS\u00ae
Reprinted with permission<\/p>\n","protected":false},"excerpt":{"rendered":"
If it looks like a jointly held mortgage will be the answer to getting the transaction done, don\u2019t sugarcoat the facts. Younger customers frequently look to parents or grandparents to help them get into a first home. As rising home prices and interest rates present even greater challenges for first-time buyers these days, you may … <\/p>\n