Hello, I have been asked by my parent to co-sign for a mortgage in order to get pre-approved. They explained that in 6-12 months they would refinance and remove me as a co-signer. They currently are applying to jobs as they were laid off due to covid, but we sold our old home and living with family so we do have that money.
My question would be if this would affect my financial aid? What about the future? I am planning on attending grad school.
I have no experience with this, and I trust my parent with the responsibility to pay the mortgage. However, I am afraid that it would drastically cut my aid or something. I currently do not pay anything.
I’m currently a 2nd year at my university, and my efc is 0. I receive pell grant and cal grant A.
It isn’t going to hurt your financial aid. As a co-signer, you do not own any of the property. If you are a traditional student, I also don’t see how you will help your parents loan. You likely have little/no income or assets. This is all downside risk for you. If your parents don’t pay it will impact you for years. If they were such a low credit risk, the bank would underwrite them by themselves. The only time I am OK with co-signing a loan is if I am helping them establish credit and the amount of the loan wouldn’t impact my lifestyle if they default. I would never do this for an older adult.
If your parents have the proceeds from the house they sold in a bank account, you may want to wait to file FAFSA until after they have reinvested it into a new home. That would count as an asset against you.
I don’t see how you co-signing the loan (not the mortgage if you have no ownership interest in the property) would help them get a loan or a better loan. Do you have a job, some big asset (assume not if your EFC is $0) that would make you a good co-signer? The co-signer usually has to have the ability to pay the monthly payment if the borrowers can’t. Can you meet that test? Just having a good credit score isn’t enough to qualify as a co-signer.
Do you have a lot of on me yourself? If not, I can’t imagine any reason why a bank would see you as a qualified co-signer for the mortgage…to increase chances of getting a mortgage.
I’m really not sure how this would affect need based aid. But frankly, I CAN see how this could have an impact on you in the future. If your parents are so sure they will be more solvent in two years, why are they buying a house now?
As a loan co-signer, do you understand that you are obligated to make the payments if your parents do not?
I just can’t imagine how this is a good thing for you.
If you happen to have a really good stable job, and you can cover the mortgage, incidental costs, of home ownership, and the rest of the household living expenses (food, utilities, gas for the car, etc.) while your parents continue to look for work, and your parents have enough money for a sizable down-payment, then it might make sense for you to buy a house together with your parents. In that case all of you would be on the title of the home together, and all of you could conceivably be on the mortgage as well.
But since you are asking about the effect on financial aid, with an EFC of 0 and a full Pell Grant, my bet is that you don’t have that kind of job.
I can sympathize with your parents who want to move out and not live with the relatives, but you co-signing a morgage with them is almost certainly not the solution.
Taking on a mortgage without having a steady income stream does not make sense at all. That needs to wait until after they do have jobs. Do they need to move out in order to get jobs? Then encourage them to use some of their savings to rent a small place in the area where they want to be working.
I’m going to add something…if your parents are job hunting, they might need to expand their geographic location. Maybe they should wait to buy a house until they find jobs.
And what bank is giving unemployed parents a mortgage…regardless of whether you co-sign?
No, that alone would not affect your financial aid unless your parents are giving you part ownership of the house.
There are other questions and issues about all of this, however that others have brought up
If you want to maintain good credit, to get grad school loans, being responsible for house payments that are not made could be of detriment. Trusting your parents is one thing. Looking realistically as to whether this is a good move is another. How can your parents be so sure that they can refinance and take you off as cosigner? What if it can’t happen? What if they are still unemployed? Why do they need you as co-signer anyways? Do you make enough money that it makes a difference as to whether your parents get that mortgage or not?
As a life long financial advisor and a lot of personal experience dealing with assets and debts, there are WAY TOO MANY risks to your financial future in cosigning a loan with your parents (or basically anyone). Others have discussed it. Essentially a co-signor is responsible for 100% of the liability. In this case, it’s all risk because you’re not an owner. So you get no upside on the equity of the house yet all the potential downside of the debt.
Most people trust their parents. Not suggesting you shouldn’t. But this has nothing to do with trust. They are currently in unforeseen circumstances due to the pandemic (job loss, home loss, etc.) This has already happened and you’ve seen the results. What’s to say that couldn’t happen again? If you’re on the note, you’re stuck.
At the end of the day, if your parents can’t get a mortgage without you as a co-signor, they shouldn’t be getting a mortgage. Normally (like 99.9% of the time), this discussion would be about them co-signing your mortgage which I’m also totally against for all the same liability issues.
It shouldn’t effect your FAFSA at all, but I wouldn’t even consider it as the last thing a college kid needs to deal with is picking up the debt on a house they don’t own.
Out of curiosity, how would a family get a mortgage app boost having a full time college student on the mortgage? With a zero EFC, the income bump is minimal.