Parents co-sign student's
I am a student and I would like to buy
a house. I could put $5,000 as a down payment. The question is, can I get a mortgage
if my parents are co-signers when I apply?
There are lots of good reasons to own a home while you are
a student. Building equity in a home vs. paying rent for an apartment or dorm
room can be a financial savvy thing to do.
You can build a
credit history that will make it easier to borrow in the future, you will earn
any appreciation on the property and you may be able to use the interest rate
deduction on your taxes.
There are also lots of good reasons
why your parents might be willing to co-sign the loan to help you get a mortgage.
They'll be helping you build a credit history, and help you qualify for a loan
that you wouldn't be able to get on your own. That said, you should think long
and hard about whether or not you should take this step.
your parents agree to co-sign the loan, they are representing to the lender that
they will step up and make the payments if you do not. The loan's payment history
becomes part of their credit history and will show up on their credit reports.
If you declare bankruptcy or the house is sold in foreclosure,
your parents will be on the hook to make the lender whole on the loan. The Federal
Trade Commission (FTC) has an electronic
brochure on co-signing that you should review with your parents to make sure
that they fully understand the risks.
If you're not able to
use the mortgage interest deduction but your parents would be able to, it may
make more sense for your parents to own the home and take out the mortgage in
their names, and you to rent from them. It won't do anything for your credit rating,
but it may reduce the cost of housing while you're in school.
what your true goal is in owning a home while you are in school. If it's building
a credit history and investing in real estate, then you don't want to rent from
Mom & Dad. If it's low cost independent living, you should talk them into
being real estate investors rather than just co-signors on your note. If you plan
on owning the house together, then get professional tax advice on how to structure
Finally, take a look at first-time home buyer
programs offered by your state or local housing authorities to see if you qualify
for one of those programs without your parents co-signing your mortgage. The National
Council of State Housing Agencies (NCSHA) site can direct you to your local
housing agency where you can learn more about first-time home buyer programs available
in your area.