As kids' co-signer, why can't I refinance?
Dear Dr. Don,
I want to refinance my home. I currently have a 5.5 percent mortgage and can get a new mortgage loan at 4 percent. I owe $173,000, and my house should appraise at $300,000, even in this down market. I purchased the home for $325,000.
What's the problem? I am the co-signer for approximately $100,000 in student loans for my two children -- college loans that are all in deferment. I also have $22,000 in credit card debt. The refi company said they can't approve a loan for $200,000 due to the student loan debt. I told them that I co-signed these loans in order for my kids to go to college and that my kids will be paying
these debts, not me. Do you have any advice for me on what to tell the mortgage company in order to get them to approve my loan?
-- John Juiced
Sorry, I'm with the mortgage company on this one. You're as obligated as your children are to make these payments. That means you have a six-figure debt on your balance sheet the loan officer has to consider in deciding whether to grant you a mortgage. The added credit card debt doesn't help your case.
Once the children's loans are out of deferment and they have a payment history of 12 months of on-time payments, you may be able to request that you be removed as a co-signer on their loans. Until that time, I have no magic words for you to say to the loan officer to get you your loan.
I can't tell you the number of parents who write in complaining of how co-signing their children's college loans have put them in a financial bind because the lender has come looking to them for payment.
My favorite reminder on this topic comes from the Federal Trade Commission's website. The agency says when you're asked to co-sign, you're being asked to take a risk a professional lender won't take. If the borrower met the criteria, the lender wouldn't require a co-signer.
When you co-signed the loan, it wasn't with a wink and a nod. You're responsible, and it impacts your access to credit.
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