Real Answers for Life’s Money Challenges
We have a 47-year-old daughter with a just-settled divorce.
She is a teacher, but shes not working full time.
She is asking her parents to co-sign for a home purchase.
Once you finally get your finances in order, you want to keep them that way. Here areseveral moves to make now.
We are retired and have a paid-for home.
What financial tool could we use to protect ourselves from default possibilities?
-J.
Dear J.,
You cant be a co-signer without putting your finances at risk.
From a banks perspective, that would defeat the point of co-signing.
If youre deemed an acceptable co-signer, it means you have a strong credit history.
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The default would stay on your credit report for seven years.
Youd have difficulty obtaining credit for yourself, particularly in the first couple of years after the default.
Its admirable that you want to help your daughter through a tough time.
But unless youd be able to make mortgage payments for her, Id urge you not to co-sign.
Remember: Banks make money by lending.
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Consider whether there are other ways to help your daughter financially without signing off on such a huge debt.
Could you allow her to move in with you to rebuild her savings?
Or could you help her with the costs of renting an apartment?
If youre determined to co-sign for your daughter, though, its essential to have open lines of communication.
Set a hard limit on the loan amount youre willing to co-sign for.
Did you know?
If she knows she cant afford a payment, she needs to let you know ASAP.
You dont want to find out that shes struggling after shes already missed payments.
For extra reassurance, you could require that you have access to your daughters account with her lender.
That way, you could verify at any time that shes made payments as agreed.
Also find out what the lenders policy is for releasing you as a co-signer.
But lenders are often extremely hesitant to do so because it increases their risk.
To get your name off the mortgage, your daughter may need to refinance it in her name alone.
If youre not willing to take on the risk of co-signing, be honest with your daughter.
This isnt about your love for her or your willingness to help her out.
Its also not a moral judgment for whatever financial situation shes in.
Your daughter is no doubt trying to move on from a difficult chapter of her life.
Of course, you want to give her love and support.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
Send your tricky money questions to[email protected].
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