We are living in some unique times where a lot of our kids are staying at home until their late 20s and even early 30s. This millennial shift is due to the high student loan debt and the ability to buy a house is a little bit harder than it used to be. This brings up the question should older parents consider co-signing on a mortgage for their kids?
When discussing this with your kid it's important to understand if they have a plan. Examine the goals, both yours and your child's. Is this a long-term investment that will be on your credit for a long time or just a short term investment in which they will refinance once they get into the house? Understanding their plan and how you fit into that plan is a good place to start.
It's also important to understand if your child is really responsible. Do they have a good track record for paying their bills on time, not adding up a lot of unsecured debt, doing what they say they will do and keeping their word?
You need to understand your financial commitment as well. What exactly are you helping them with? Do they just need help for a down payment or do they need your good credit history in order to apply for a mortgage? Are you giving the money for the down payment or earnest money and is it a gift or a loan. This will affect your ability to get a mortgage, or theirs, based on if they have to pay you back, which increases their debt to income ratio.
Always take into consideration what happens if the default or if the deal falls through. How is it going to affect your relationship with your child? This is important to think about and even though we don't like to consider the negative results, it can happen and having safety nets in place if it does is just smart managing.
Consider if two mortgages will be a hardship should you have to take over. Having another mortgage show up on your credit as an outstanding loan obligation could complement refinancing or buying other things on credit for you in the future. This is certainly something to consider if you're planning on taking out a loan for a car, home equity line of credit or applying for a new credit card.
Whether you are gifting them the down payment or helping them apply for a loan and cosigning on the mortgage, understand all the implications, what happens if things fall through and the ramifications on your credit history as well. Once you understand all of these things and still feel comfortable about it, it may be a great way to help your kids get on track to homeownership.