Mortgage co-signing question

I’m going to be a junior in college next year and have $60,000 my grandfather left me for college unused. I’ve realized I spend 5x as much on housing than tuition and want to use the money for a down payment on a ~$200k house instead of wasting it on rent these next few years.

Between renting out a few rooms and working as a waiter, I will have no trouble at all with the $1,200 a month or so it will end up costing me. In fact I think I’ll be able to break even just from charging rent.

What I’m wondering is if there is any way a bank is going to lend a 22yr old who only earns $15,000 a year and has essentially no credit history so much money.

My parents have excellent credit and would be willing to co-sign the loan. Of course if they put the mortgage in their name it would be no problem, but I would like to get the tax write off and have the responsibily of owning it myself. Will having them co-sign the loan in my name be enough or is there no way I will get approved?

Not sure about the co-signing part of your question (someone who actually knows will surely be along in a bit), but I can tell you fairly confidently that there’s no way a bank is going to give you a mortgage on your own.

First, they generally have very rigid formulas that limit the percentage of your income you can apply towards the PITI (principle, interest, taxes, and insurance on the house).

I ran into this problem with my first house. I’m single, so I can afford to devote a bigger chunk of my income to housing than someone with 10 kids to support. But the lenders stick to their formulas, come hell or high water, even though they don’t always make sense.

Your income from renting out the rooms might be included, but at this point, that income is wholly speculative, so that’s a problem.

Second, your lack of credit history is also a killer. When I got my first mortgage, I had at least some history of paying rent and utilities on time, paying my credit cards on time, and paying off a car loan or two.

Oh, and BTW: Welcome to the SDMB!

Co-signers are equally responsible for loans.

Although I was in banking for 15 years, mortgage lending was not my forte. It’s a bit different from a car loan. In general though, I don’t think you’ll get the loan for the following reasons:

  1. Co-signers are generally not allowed to “shore up” the income requirements on a loan. A co-signer is used when the applicant meets the income requirements but does not have sufficient credit history.

  2. I’ve never heard of a co-signer on a mortgage loan for any reason. Doesn’t mean it can’t happen, but I would bet it would have to be a non-bank lender to even consider the possibility.

IANAL, etc. but if you find an institution willing to have a second party on your mortgage with you, see if you can get them on as a “guarantor” rather than a “co-signor.” Co-signors are jointly and severably liable for the debt, whereas guarantors are liable only when the creditor has exhausted all legal means of collecting from the primary debtor.

Whoever signs the mortgage will have the information reported on the credit reports. You are all cosigners, signers…whatever…you are all responsible equally.

A cosigner is just a signer. Everyone is responsible.

If the loan is approved and then paid on time, everything is hunky-dory. Should you be late on a payment or struggle to keep up and risk foreclosure, it’s all of you who are late or in risk of foreclosure. Should you foreclose, it’s on all your records. You are the responsible parties/signers. No one is less responsible, and cosigning means you are paying/responsible…it’s not like being a character witness.

Also, you can never get your name off of a mortgage. The mortgage must be paid to relieve the debtors of their obligation, so if your parents commit, they’re stuck. Unless you could refi on your own someday. Risky for them.

Most likely problem: Your parent’s debt will be calculated to reflect the debt from the mortgage and will affect their ability to secure other loans. They have all their debts plus this new one and risk being over extended for loans they might really need for themselves

Another issue: If this is not their primary mortgage on their living residence, the bank may limit the length of the loan to 15 years…maybe 20, maybe 25. Second mtgs are usually not for 30 years.

You don’t really co-sign mortgages, you co-sign the promissary note which is the debt instrument.

Your income makes it virtually impossible to qualify alone for a loan that size.

Note co-signers are used on home loans sometimes. One trend that will greatly make your search more difficult, is the fact many if not most loans are sold in the secondary market. In the old days, a mortgage company might own the loan for its duration, so if they knew the co-signer was particularly good financially, they might do it.

Another way, now mostly eliminated because mortgages are sold, is pledging assets instead of co-signing the note.

Your best option is to take title and the loan with someone else.

I’m in the commerical divison of a umm… sizeable… east coast real estate company that is primarily residential. I asked one of our pet, in house lenders about your scenario.

According to her, given your specs - ie no credit history college student - 60K down - 200K purchase- some limited part time job income and projected income from renting out the house - The only real way you are going to swing this by yourself is with a cooperative small bank and even that is stretch.

There are second tier lenders that might take a chance on your deal, but their rates are likely to be less competitive. The real problem is the risk postion of how the loan payments on the remaining 140K or so is going to be secured after the fact and a plan to rent out rooms + a 15K base income is not all that compelling to most lenders.

Beyond all this you really need to talk with an accountant. If you are only making 15K the mortage interest deduction is not going to have all that substantive an impact on the meager amount of income tax you will be paying at that income level. If you were making 40K - 60K + it would be a lot more of a compelling reason to want to swing the loan by yourself, but given your current tiny income your “tax write off” savings are likely to be fairly minimal.

I think it would make more sense (assuming your parents are stable people and you have a good relationship with them) to use their offer to co-sign the loan and work out an agreement in the future to have the house transferred over to you. Use the leverage of credit wisely when it’s offered to you and you will get a lot further than trying to swing things alone.

I’ve done residential finance for a few years and I can tell you that the whole co-signing thing doesn’t exist. Your parents can be a Co-Borrower with you and that will allow you to use their income and credit scores to obtain a mortgage. But keep in mind that they will also be on the title to the house and if you default on the mortgage it will affect their credit and conversely if they file bankruptcy the house will be one of their assets and will be affected by it. Having no credit score isn’t a problem though if you can find a good FHA (they have programs specifically for it) broker to work with they can build you a credit score. As far as income goes there are 2 important number and they are your top and bottom Debt To Income numbers. You top DTI is (or will be, if purchasing) your housing expense(Mortgage payment, PMI, Home owners insurance) divided by your income and you bottom DTI number is you housing expense plus all consumer credit (auto loans, student loans{in some states they allow you to “state” the payment} credit cards, and cell phone bills) divided by your income. The ideal numbers would be 28% top and 38% bottom but most lenders will take anything up to a 50% bottom number if you have a credit score above 700, anything above a 620 mid score ( the middle score from the three credit bureaus. i.e., 698, 680, 671 mid=680) is good though… As long as you are on the title you SHOULD be able to write off the interest against you income (I’m not a CPA, so go talk to one before you do it.) And as long as you and your parents combined income and credit scores meet what I state above you should have a good chance of getting approved.

AFAIK, you can not have a co-signer on a mortgage who does not or will not live at the address the mortgage is for. I found this out 2.5 months ago as I went through the mortgage process.

I really appreciate all of the advice!

It sounds like the obvious choice would be to have my parents buy it and then have them transfer the house to me once I’m making enough money to get a loan on my own. The tax write off would serve them better too.

Now what I’m wondering is how difficult it will be for them to give me the house when the time comes that I can carry a loan. Since the house will have appreciated and interest rates might have gone up, what will Ibe involved in transfering it? Can I take over the same mortgage or will there have to be a new mortgage to transfer the title?

First of all, if you are going to live somewhere else once you are out of college it is probably cheaper to rent an apartment then to buy and then sell a house. A lot less stress and hassle too. While in college the tax write-off will not be so much because your income is relatively low and thus in a low tax bracket.

That said, do your parents have much equity in their house? They could take a second mortgage out on it and lend the money to you to buy your house. Write up a note and deed of trust and record it just as a bank would and you’ll be able to deduct the interest. Your parents must report the interest you pay as income but can deduct the interest on their second mortgage and thus come out even. We’re actually doing something like this for our daughter.