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 Dear
Dr. Don,
Our son has asked us to co-sign on a home loan for him.
He will have no down payment and is able to afford a $1,400 monthly payment. He
has been advised to do a negative amortization loan. This, however, seems
risky to us. Are there better alternatives? Thank you.
-- Dotti Duplex
 Dear
Dotti,
When it comes to co-signing, I like to quote the FTC Facts
for Consumer Publication, "Cosigning
a Loan." It states: "When you're asked to co-sign, you're being
asked to take a risk that a professional lender won't take. If the borrower met
the criteria, the lender wouldn't require a co-signer." The publication
is required reading for anyone thinking of co-signing a loan -- even if the loan
is for one of your children.
Let's talk about the mortgage
that your son is being advised to take on. A negative amortization mortgage means
the loan balance goes up if the monthly payment isn't enough to cover the interest
expense. The loan payment may be flexible, but the interest expense isn't. Your
son wants to buy a house with no money down with a mortgage that will let the
loan balance grow? Bad idea, especially since after a while the loan payment
is recast to a higher amount based on the growing loan balance. My
best advice is for your son to work on improving his credit score, start saving
to accumulate a down payment and try to find a house he can afford with conventional
financing. Taking these kinds of chances with his, and your, finances just doesn't
make sense.
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