Homeownership has long been a key piece of the American Dream, symbolizing financial stability and independence. Yet with rising home prices, elevated interest rates, stagnant wages, student loan debt, tighter lending standards, and a limited supply of starter homes, many young adults feel this milestone is out of reach—so they turn to mom and dad for help.
One way parents help their grown kids buy homes is by cosigning their kids’ mortgages. Cosigning means taking financial responsibility for someone else’s loan. This allows parents to use their own long credit and work history to help their kids qualify for loans they might not get on their own, tying parents to the debt until it’s paid off. Cosigners don’t have their names on property titles and have no ownership of the home.
In the U.S., over half of all parents say they’re willing to cosign their child’s mortgage, and 7% have already done so.
Are you thinking about cosigning a mortgage for your grown child? It’s a serious decision that could impact your finances and relationships, so here are seven things to consider.
Related: The Importance of Intergenerational Financial Conversations
1. Mortgage Payments Could Fall on Your Shoulders
Whether it’s due to job loss, medical debt or other reasons, if for some reason your child can’t make their mortgage payments, you’ll be legally obligated to pay.
2. Your Future Loans Could Be Impacted
Cosigning a loan means the debt will be on your record and increase your debt-to-income ratio. This could impact your ability to qualify for loans in the future, as well as your interest rates, if you need to borrow money for a new house, car or other purchase.
3. Your Credit Score Can Be Impacted…For Better or Worse
If your child pays their mortgage on time each month, it can give your credit score a nice boost. On the other hand, late mortgage payments can ding your credit score.
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4. Divorce Could Get Messy
If your grown child is married and ends up getting divorced, you’ll still be legally obligated to the loan, even if your child’s ex is assigned responsibility for the mortgage.
5. Relationships Can Be Impacted, Too
Money is a common source of conflict and misunderstandings within families. You may feel frustrated with your child if they act irresponsibly and put your finances at risk. Or your child may feel resentful if they feel like there are strings attached to your favor of consigning.
6. Sibling Feelings Should Be Considered
If you cosign for one of your children, will the others expect the same treatment? Will there be jealousy or resentment if you help one child but not another?
7. Consider Other Ways to Help
Cosigning isn’t the only way to help your adult child purchase a home. Depending on your financial situation, you could help with the down payment, make a family loan, gift money for the purchase, or establish co-ownership of a property.
Related: 7 Tips for Talking to Adult Kids About Inheritance
Cosigning a Mortgage for Your Grown Child: The Bottom Line
Cosigning a mortgage can be very rewarding for you and your grown child. However, there are many important financial and relationship considerations to make before signing on the dotted line. Consider consulting a financial professional to help decide if cosigning is right for you.
Want more? Check out our blog, 4 Ways to Leverage Home Equity in Retirement
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