Multi-generational living: buying a house with co-signers

Buying a house with family members as a co-signer can often improve your outcome!

I recently had the privilege of advising a family in purchasing a home in Portland. My main borrower was a first time home buyer, but he was assisted by his wife’s parents! The scenario was as follows: the wife was a stay at home mom, and her husband was gainfully employed, but with a not-insignificant amount of student loan debt he was dealing with. Her parents, who were “ageing in place’ had a large property that had outgrown them, and they were interested in downsizing, as well as getting into some single level living issues.

The son-in-law’s debts were making it difficult for him to make headway on saving for a down payment.  And the in-laws didn’t have much income to access a mortgage for their real estate downsizing strategy.

The great thing here was that the parents had this excellent piece of real estate in Happy Valley Oregon free and clear– no mortgage, all equity! They were willing to sell this home, free up their equity and provide a 20% down payment for the daughters family, as well as co-sign for a larger mortgage with the son in law.

Between the 2 parties, we assembled the down payment, and requisite income like a real estate Voltron to make the next purchase work.

The younger generation was able to level up to a nicer class of property with the down payment assistance from the parents, and the parents were able to achieve a more sustainable living arrangement, and sock the remaining cash into their retirement fund.

Getting a family member to co-sign on a mortgage is a common occurrence for a number of reasons. This example is one where the co-signer will actually cohabitate with the buyers, but the more common scenario is for a parent/family member to co-sign, and act as what is known as a non-occupant co-mortgagor.

Since the most critical element of qualifying for any mortgage is verification of income to meet the monthly payment obligation, adding a co-signer simply adds that other borrower’s total income and total debts into the qualifying model.

This arrangement can be a huge game changer for many younger borrowers, who feel that they have plenty of income to make the payment, but for one reason or another maybe that income can’t be verified, or qualified into the underwriting guidelines.

One thing to note- is that the co-signer, regardless of if they are occupying or non-occupant, is actually on the property title as a CO-OWNER of the property.

I have had a few instances, where we set the title up to tilt the ownership obligation AWAY from the parents and more onto the children. In the story here- the parents went on to the title as 1% owners of the property. The reason behind this, is that it can create complications when applying for things like medicare. The 1% ownership allows the co-signer to support the overall qualification of the mortgage, without having the real estate asset impact their net worth.

Of course if you have any questions about how this mortgage strategy can be a way to help you get into the Portland real estate market, we are happy to be a resource to you. Call or click! – JA

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