Is My Credit Affected if I Co-sign on a Mortgage for My Children?

Is my credit affected if i co-sign on a mortgage for my children? Will it restrict me from buying another home?

5 Answers

This is a great question and one we get often!

The answer is, YES!  Your credit is affected, but how it is affected is different in all situations.  when purchasing real estate the more correct term for this scenario is " non-occupying co-borrower", rather than co-signer.  Typically, the most prevalent "mortgage instrument" (product) for non-occupying borrower is an FHA mortgage.  FHA will allow a non-occupying co-borrower with a little as 3.5% down.  It must be remembered, using a non-occupying co-borrower will NOT work in all situations.  This approach is most often used when the primary borrower (your son, or daughter) lacks sufficient credit history, or NO credit.  In these cases, the credit profile of the co-borrower (family member) is used as a "substitute" for the primary borrower.  The co-borrower option CAN NOT be used to "replace, or supplement" poor credit.

There are lenders who will allow the use of a "non-occupying co-borrower", but, typically, these lenders will require a much higher downpayment.

What are the **drawbacks **for you, the co-borrower?

1)  This "new" mortgage will become part of YOUR credit profile.  If you wanted to purchase a new vacation home, for example, the mortgage for your child will be included in the dabt-to-income (DTI) calculations for the purhcase of your vacation home.  It is possible, depending on your personal financial situation, "carrying" this mortgage as a co-borrower could prevent you from securing financing for YOUR puchase of the vacation home.  If your son, or daughter, has remained current for all payments for a period of twelve (12) months, many lenders will not include the "co-owned" liability in in calculating your DTI ratio.

  1. Worst case?!  If your son, or daughter, should become delinquent in the mortgage, you will "suffer" the impact, just as if it were your own mortgage.

As with all things, used appropriately, in the right situation, this is a great option for young folks starting out.  Your questions are very appropriate for any parent considering this approach as an option for assisting their children.

Good luck to you!

Dear Anonymous,

This is a great question.  The short answer is that co-signing for your children on a home COULD restrict you from buying another home

When you "co-sign" a mortgage loan for a property you do not intend to occupy, this is called non-occupant co-borrower in the mortgage lending industry.  what this means to you is that you are assuming liability for this loan along with your children and that this mortgage will show up on your credit report as a liability you owe.

Whether this will restrict your ability to purchase another home depends upon how the FULL payment on this loan will affect your ratio of your total monthly debts to your gross monthly income, including the payment on the new property you intend to buy.  If your income is sufficient to meet lending guidelines, considering this payment, then your ability to buy another home will not be restricted.  You should expect to provide a detailed explanation to underwriting regarding the situation.

Now, if your income is not sufficient to meet lending requirements when counting all of these debts, your ability to buy another home WILL be restricted UNLESS you can meet the following requirements.  After your children have lived in the home for 1 year, you may be able to provide 12 months of their cancelled checks to document that they are paying the mortgage payment.  Underwriting guidelines in this case will also require that the payment history references no 30 day or greater late payments.  If you can do this, then you would be able to proceed with your new purchase without this mortgage payment being counted against you.  As always, you need to check with your loan officer and be very clear regarding the timing of this loan and the sitiuation early in the process.

In summary, "co-signing" for your children, or anyone else for that matter, needs to be carefully weighed.  This loan will show up as YOUR responsibility and the payment history will count as YOUR payment history.  For the purposes of obtaining a new loan, this payment will count as YOUR payment for at least one year in most cases.

I hope this helps. 

Your credit IS affected if you co-sign on a mortgage.

First, if your kids don't make every payment on time, it may be reported to credit bureaus. If it is, the missed or late payments show up as derogatory items on your credit history and will drop your credit score. And as any lender will tell you, mortgage late payments have a much more significant impact on credit scores than a late payment to a credit card company.

The second way in which co-signing affects your credit is that it saddles you with what is called contingent liability.

This means that if your kids default on their mortgage, you are obligated to pay it. So if you were to try to get a mortgage or other loan, you would probably be required to prove that your kids are paying the mortgage as agreed. That means you will need copies of canceled checks to the lender from your kids. Underwriters will likely require at least twelve months' history of satisfactory payments before they will ignore your contingent liability.

At best, co-signing for your kids will delay any home purchase and impose extra paperwork on you.

At worst, it could drop your credit score, prevent you from getting credit or make getting it more expensive. If the reason your kids can't get their own mortgage is that their credit is bad, you should think very carefully before agreeing to this. If their credit is just thin, they should be able to get an FHA loan with a non-traditional credit report. They only need 3.5% down, and can get that through community home buyer programs or family gifts. It may be in your best interest to offer down payment help rather than putting your credit rating in jeopardy by co-signing.

Yes and Yes....If you co-sign on a loan for anyone, you are equally liable for the payments. Co-signing for children on a home is a fairly common occurance, particularly on FHA loans. Keep in mind that when you do this, the credit reporting will show on your credit report as well as theirs.

If you are going to buy a home of your own, beware that the payment on your children's home may very well be counted in the  qualifying ratio for your home purchase. This is generally true if the loan you co-signed on is less than 1 year old.  After that initial period, standard underwriting guidelines will allow you to provide cancelled checks showing that your children are making the timely payments to help with your qualification.

I haven't seen the co-signed loan adversely affect credit scores, unless there are late payments on the account. For this reason, it's not uncommon for the parents to request duplicate mortgage statements from the mortgage servicer, in addition to asking  their children to provide proof of timely monthly payments.

The thing is totally based on your credit score; if it’s been affected then it would certainly create a problem while approaching for another mortgage loan. If you are capable of maintaining of your credit score, then I don’t think that there would be any problem regarding going for another home loan.