Son’s offer was accepted today on a house. He can well afford the mortgage, but because his job is partly commission he doesn’t qualify for enough mortgage. He is close, but the taxes put him over. He is with a large wireless company. He has always been good with his money and has more than the 20% down that he needs. He hasn’t been there long enough for them to count his commission.
We will co-sign, but I have read that a consigner can choose to be on the deed or not. I think it would be easier not to be, especially if he can apply to have us removed once he has been at the job long enough for commission to count, plus he may move out of the commission side.
The question is not whether we SHOULD co-sign, but more about the best way to do it. Be a co-borrower instead of a consigner, or are they the same? We understand the risks. Plus, his girlfriend will be living there and also,helping to,pay. $ should not be a problem. We’d rather co sign than have them go in together, that could get messy if there is a split, so he will be buying it. Even if he earns half the commission he made this year, he could afford the payment.
Anybody with knowledge about this who can advise? Thanks!
I think co-signers and co-borrowers are the same. Both you and son are responsible for the loan.
Did you help with the down payment?
Are you fine if your son puts his GF on the deed without your knowledge or consent?
If you are on the deed, you will be notified if and when there are changes to the deed.
He is paying for everything, down payment and all. He has managed his $ well. He wouldn’t put her on the deed unless she paid for the house too. He is tight with his $ and not naive enough to just put her on it. I am pretty aware of his finances. He is buying a house that he can afford on his own, it will be a bonus having her pay part of the bills. He has worked all but 2 months since he was 17 and could drive. We didn’t charge him rent because we knew he was saving to buy rather than rent.
Is it hard or expensive to be taken off a deed? I just have no idea about the process. We would like to be able to back him up to qualify, then in a couple of years we’d like him to apply to have us taken off the loan. Who knows where rates will be in 2 years, so ideally he wouldn’t have to refinance to have us removed as co signers. I thought it might be easier if we aren’t on the deed too. This is a starter home, so he will probably move by 5 years anyway…so maybe it’s a needless worry.
Cosigning = co-borrowing. For all intents and purposes, the mortgage company can collect from each of you once each of you signs the promissory note.
Compared to a “Guarantor”: the lender technically has to go against the borrower first, then go after the guarantor.
Whether to be co-owners on the deed: it depends on the terms of the mortgage document. You prefer that your obligation (as co-borrower) be limited to the collateral securing the debt, which is the property. This is a so-called non-recourse mortgage.
The mortgage company may want the note, mortgage and the deed to have the same parties so all the documents “match.”
Generally, a co-owner (joint tenant) of real property can quitclaim his/her interest in the property by executing a quitclaim deed and recording the QC deed in the property records. But…if you are a co-signer of the note and a co-mortgagor, the mortgage company may not allow you to file a QC deed because that technically would be considered a “conveyance” of the property and constitute a default.
You really do have to read the documents to understand the structure of the mortgage loan and the restrictions placed on the actions of the co-borrowers during the term of the loan.
You could at a later date obtain the consent of the mortgage company to QC your title to the property. Assuming that the mortgage company consents, then there is the possible issue of a “gift” of your interest to your son which, if it exceeds the $14,000 annual limit, would require the filing of a gift tax return and the excess amount count against your lifetime maximum gift exclusion (which is currently $5.43 million per person).
That “gift” part would concern me. I don’t know how much value would be considered gifted. The mortgage is only gong to be around 100,000. Guarantor sounds like the best option, so it is something we can google, then ask the lender about. Without his commission pay (which was the large part of his pay) he qualifies for 90k on his own. CO-signing, or whatever will help him get the amount he needs and should help him get a better rate since Dad has a great credit score, son is in low 700’s.
Thank you for giving me a little more info so we can make the best decision. Luckily, we are not worried about him making the payments, but at some point we might like to be off the mortgage for our own purposes, and it would be easier when he goes to sell it. I actually foresee him renting it out when he is ready to move on.
I suppose he could refinance at some point into his name, but that usually requires paying title insurance again. Around here it is usually 1%. There sure is a lot to know about real estate finance.
Just be aware that even if you prefer to be a “guarantor,” the mortgage lender may prefer that you be a co-borrower. And, even if you were a “guarantor,” it is not too difficult for the mortgage lender to declare a default on the original note (if it comes to that) and go after you virtually simultaneously.
Bottom line: do what you feel is comfortable. You know your son’s financial circumstances and practices. I’m sure you’d step in before you’d let him default, but one never knows what the future brings.
I would be leery about involving his girlfriend in the mortgage or deed because that can pose messy issues in the event the relationship ends. Any contributions she makes to the mortgage/living expenses should be characterized as that of a “roommate” and leave it at that. If she contributes towards the down payment, that can raise the issue of some type of “equity ownership” if there is ever a squabble. Obviously these are worse-case scenarios, but just take note, advise your son, and proceed accordingly.
dentmom, I considered that option, but the truth is, I worry about him putting TOO much down. He is putting 20% down, but WHAT IF things go bad and he does want to walk away, short sale, whatever…I hate to even think that way, because I get mad at people who do that. Yet it seems unfair to have put down 20% and still get underwater when there are people who put next to nothing down, so when they walk it’s like they lived free, they had no skin in the game.
I guess I’m afraid of him having to much “skin” in the game. I almost wanted him to put down the least possible and just pay pmi since it might be only 4 years or so. The offer was written as 20% so…
attorneymother, I think we should just be on the deed. I guess the liability issue comes up and I’m not sure how that works with homeowners insurance. We will have to make sure he has good limits and not the minimum. I decided it might be best to be on the deed in case anything happens and so we have more rights. I just thought it might be harder in the end. There is the “gift tax” issue when we come off the deed, and also capital gains if he/we sell. Either way there are issues. He will be moving within 4-5 years, but maybe we will keep it as a partnership to rent. Guess we’ll see how rents and sales prices are doing then.
Maybe we should reconsider giving him $. But we are already buying ourselves new furniture that we don’t really need so he can have our old set, and hubby’s lawnmower is getting old. The old lawnmower will last longer on Son’s much smaller yard, so that’s ok. It owuld probably only make it 2 more years on ours. He’s getting a TV for his birthday (my have they come down in price). The gf is bringing her new mattress and buying a bedroom set.
Oh well, we are still in contract phase. New wrinkle is the oil tank that we just found out is in the basement. Somehow the 4 of us didn’t notice it! (gas conversion in 2008)
“There is the “gift tax” issue when we come off the deed, and also capital gains if he/we sell. Either way there are issues.”
Check with your accountant, but the “gift tax” issue is really only a concern IF you and your husband will exceed $10.86 million in lifetime gifts. If not, whatever the amount the “gift” IS (the amount attributable to your and your H’s interest) the year you quitclaim your interest, you’d just have to file a gift tax report so that the amount over $28,000 ($14,000 x 2) is accounted for against your and your H’s lifetime limit.
Cap gain: if this is your son’s primary residence and he lives there for 2 years +, he has the $250,000 cap gain exclusion for primary residences. Again, check with your accountant whether having co-owners complicates this at all for your son, but here’s the IRS publication on home sales:
Generally, if the property turns into a rental property, then its characterization as a primary residence is lost if the time requirements of residency are not met prior to the sale.
Perhaps some CPAs will chime in. But planning ahead is a good move on your part.