Skip to comments.Any mortgage Professionals?
Posted on 02/04/2013 4:10:14 AM PST by MacMattico
Ok, I know all the downfalls of cosigning, but I'm willing to take the chance because it's such a good deal. I wouldn't want to make the payments but if it came to that I could.
Relative has $40,000 down to purchase a house that is a great deal at $105,000. I've known the people that lived their for years, their upkeep of the house is immaculate. They need to move out of state quickly for a job, hence the low cost.
Problem is relative has between a 575-606 credit score! This from "youthful indiscretions" over 5 years ago. This house will go fast-- would my cosigning with a 800+ credit score help? I've heard for a mortgage it doesn't always help. This relative is now making more then enough money if he had the proper credit score to afford the house. This individual now has an excellent credit to debt ratio and has gotten his act together.
Forgot to post as VANITY. Sorry.
I’d imagine your willingness to cosign would make it a done deal.
However something doesnt add up. If he paid the 2k it would start affecting his credit score within a couple months. However its my bet there is something else going on. A single delinquency doesn’t usually merit a score that low.
These are excellent questions. And I bet Dave Ramsey will give you answers. He is very much against cosigning, so be ready for that. daveramsey.com
Possibly quickly if it's showing on his report as being paid. Being that old, he should be able to settle that debt for at least 30 - 50 cents on the dollar.
PS: With a score that low these days, I doubt they would even give him an application for a mortgage.
....if you did, why would you seek advice?...that alone should answer your question..NO!..
Keep in mind that this debt will be reported as yours in all future credit reports. With the amount of down payment mentioned and credit score, he should be able to get a mortgage, just not the cheapest one out there. If you are committed to help, I suggest that you be put on the title as well as the loan. That way you will have leverage should he ever default. Insist that he refinance after his credit is good and simply abandon your interest in the property. Otherwise the lender may have a claim against you or your estate at some point in the future.
You’ve obviously rationalized why you should do it. What’s the point of giving you advice in how to do it? That’s what the bank will tell you.
Write it up as a 3yr. loan with a balloon payment at the end of the term, which should give the the borrower enough time to refinance and pay you back. Charge a reasonable interest rate to make it worth your while.
If the borrower defaults, you get the property at a pretty good discount.
I agree with what some of the others have suggested. Absolutely do not cosign the loan. It’s the worst of both worlds for both of you. If he cannot get the loan himself, I would suggest buying the house yourself with full title and loan in your name. Then put together a lease-purchase agreement with your relative with the full $40,000 down payment. He becomes responsible for all upkeep, maintenance and improvements. To make it easy, you could even make your loan terms with him identical to your mortgage and insurance costs. You have great options in this case if he defaults.
Essentially, you are unlikely to be underwater with this arrangement even if he quits making payments for a while. Make the terms of default or sale extremely clear. I would do the following: In the sale of the house, you pay your mortgage and insurance cost off first, anything you’ve carried because he’s been late on his payments second, he gets his down payment third, and you get any profit from the sale. Because you are taking on the risk, you should get the profit. If he at any point wants to purchase and get his own mortgage, he can do it at cost.
This protects both of you, favors the one who takes the risk, and provides a clear exit strategy. In today’s world finances are private enough that your relative could quickly rack up credit card debt, etc and leave you unprotected. This also encourages him to move as quickly as he can to secure his own mortgage so that he protects his profit potential.
The oldfashioned way of underwriting a loan when a delinquency shows up is to have applicant pay it off immediately and provide a letter of explanation.
I had a similar thing when I bought my first house, an R-5 writeoff of a medical bill I never received, that was supposedly taken care of by the health insurance plan from two jobs prior. I shpuldn’t have had to pay it since I didn’t really owe it, but if I was going to buy that house it was what I had to do, so I did.
And, here I thought you needed a heimlich!
As all agree, do not co-sign.
Buy the house yourself as an investment - now’s a great time.
Co-signing you are on the hook for the whole nut but have no ownership or control. This gives you both. If your financial situation is strong enough to be a co-signor, it should be strong enough to make the purchase yourself.
Rent it to friend with a lease/purchase agreement, or, just sell it to him when his credit is better.
Most mortgage companies do not allow co-signing because Fannie Mae and Freddie Mac will not buy the loans. You would have to go on as a co-mortgagor. That means you would own 50% of the house, be on the title and fully liable for the mortgage if your relative defaults.
In addition to the above liabilities the full amount of the mortgage payment would be used agains’t you in calculating your qualification for a new mortgage if you decide to sell your current home and buy another or purchase a second home or an investment property.
From what you have told me your relative is possibly not ready to be a homeowner quite yet. Over my 27 years in the mortgage industry I have counseled many people to pay off all of your delinquent credit and get your scores up before you attempt to purchase a house. Some listen, some don’t, some talk their relatives into helping them.
I give this advice to you as a 27 year veteran of the mortgage industry both as a mortgage loan underwriter and a mortgage broker.
Co-signing is a solution for lack of income, not for a bad credit score. Your relative still would not be able to get a mortgage loan, except as the other freeper suggested maybe one with a high interest rate. Also, paying off something that’s been on your credit report for 5 years will make your credit score go down not up. That black mark should go off your report after 7 years and the lender won’t even look at that if your history in the last 2 years is good.
Your relative is close to being okay - needs a score of 640 to get an FHA loan and it’s just a function of time to get there. A good website for credit issues is creditboards.com
It’s not a risk at all, if you simply budget for paying for it yourself. Just ensure that you have title rights.
If it is such a deal, why not buy it by yourself? You are going to end up making the payments anyway, so you might as well get your name on the title from the beginning....
I do this for a living.
The lower credit score borrower could not be on the loan; you would need to do it in your name only.
With scores that low; he has some work to do most likely get approved.
General rule is you can co sign to add income; but good credit doesn’t offset bad credit.
Message me if you want more specific info.
If the house is a great deal and you can make the payments, buy it yourself and rent it back to your relative at cost. Your out-of-pocket is unchanged; your future credit rating is completely under your control; and you earn the equity in the property.
...and be ready to write off the relative when they have to be evicted because they think you will let them live there rent free.
What? I was getting snarky? Never been called an asshat. Pretty funny. I think you took what I said wrong.
Thanks everyone. Maybe I will buy the house and rent it to him. If he rebuilds his credit I’ll sell it to him. He’ll have time to raise the credit score, and if not I think it’s a good investment anyway.
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