The real estate bull market that we’ve all just went through over the last several years has resulted in countless reality adjustments for people.
Probably not a big surprise, but the most prominent change that has come from the market run up has been the dramatic increase in housing prices. Even with the recent market cooling that has occurred, home prices are substantially higher than they were a few years ago. What things go from here is anyones guess, but even if the market cooling were to continue, it is very unlikely that residential real estate prices will roll back to where they were a few years back, so we’ll all have to adjust to the higher real estate prices.
A residual effect of the home pricing increase is that family members are commonly being recruited to help the next generation of home buyers. Whether its Mom and Dad, Grandma and Grandpa or anyone else, many first time homebuyers are finding themselves needing help buying that first new home more than any time in the past, and that means co-signing loans.
Something anyone considering co-signing on a home should know is that they may not be able to do so, regardless of how financially well off they are. Why? Because the rules seem to have changed entirely in some cases. Some lenders now insist you’re actually named on the title with the people that are buying the property as opposed to co-signing.
While the exact reason is unknown to us, it may have to do with the fact that by having everyone on title it makes it much less likely of default. If by chance a default does occur, having so many people on title means the lender undoubtedly has reduced risk tied when it comes to their investment. As with anything, whether something is good or bad depends upon how you look at it. At first glance this doesn’t sound like a positive for the co-signer, but we think it is.
When you co-sign a loan it affects your personal debt ratios similarly to how buying a home would. You are on the hook for the value of the loan either way and that affects how much you can borrow. The advantage that comes from being on title of a home as opposed to simply co-signing is that at least you have the benefit of being a partial owner.
A few things to consider…
From what we can gather, lenders are implying that once the first mortgage term is up, assuming the actual homeowners can qualify for the remaining mortgage, the co-signers can likely be removed from the title. Whether this actually happens would be in a case by case basis. First, the intended owners of home will still have to qualify for the mortgage value, and if they cannot, the lender will most likely not let you get off of title, and if they do qualify and you can be removed from title, there will most assuredly be legal fees involved in doing so.