Cosigning a Mortgage: What Children and Parents Need to Know
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Here's your Money Briefing for Tuesday, October 4th. I'm J.R. Whelan for The Wall Street Journal. With mortgage rates approaching 7% and prices that keep on rising, buying a home can be unaffordable for many, and especially for younger people. To help pull together funds for a down payment, some people might think about approaching their parents to co-sign for a mortgage.
How widespread is parental willingness to co-sign mortgages today?
Sitting down with your parents to discuss finances could be uncomfortable, but it's really important to make sure that everyone is on the same page and has the same expectations.
On today's show, we'll talk with Wall Street Journal contributor Robin Friedman about the benefits and the risks that can arise if parents co-sign, and she'll discuss other ways that parents can give their children a helping hand in buying a house. That's after the break.
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Housing affordability fell to its lowest point in the second quarter since the economic downturn 15 years ago, according to the National Association of Home Builders. But instead of waiting on the sidelines to buy, some younger prospective homebuyers might turn to their parents to co-sign their mortgage. And while that could help you buy your first house, there are financial pitfalls to watch for before parents sign on the dotted line. Wall Street Journal contributor Robin Friedman recently wrote about this for the WSJ's Mansion section, and she joins us to discuss. Robin, thank you very much for being with us.
Thanks for having me.
So, Robin, it's not unusual for parents to co-sign a mortgage for their children, but how have changes in the housing market affected that trend?
According to some data from LendingTree that they ran specially for the Wall Street Journal, we found that 57% of parents are willing to co-sign their children's mortgage. That's really good news for buyers because even though the real estate market has slowed lately as interest rates have gone up, homeownership still remains out of reach for many. Sure, Bidding wars may not be going on right now, but prices remain high, and with mortgage rates now hovering around the 7% mark, owning a home is much more expensive today than it was a year ago.
How do parents co-signing a mortgage improve the chances of a child being approved for a loan?
How do higher mortgage rates and home prices affect first-time buyers' options?
For buyers who don't have an adequate employment or credit history, like a recent college graduate or someone who's self-employed, a parent co-signing can make the difference between getting into their dream home or not. When a parent is a co-borrower, the mortgage lender simply adds up the assets and income of both parent and child, as well as the debts of all the parties. So if a parent has substantial assets and income, that can tip the scales for a child who doesn't.
You know, Robin, we've talked on the show before about how parents and children discussing paying for college could result in some tricky conversations about family finances. How should parents and children approach the co-signing of a mortgage?
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–0:56
2
How widespread is parental willingness to co-sign mortgages today?
0:56–3:16
3
How do higher mortgage rates and home prices affect first-time buyers' options?
3:16–4:58
4
How does a parent co-sign improve a child’s mortgage approval odds?
4:58–6:29
5
What conversation should parents and children have before co-signing?
6:29–7:06
Speakers
3 identifiedMore from WSJ Your Money Briefing
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