Co-Signing a mortgage - mortgage interest deduction question.

[hankster]

I've been on the bad end of a co-sign deal, fortunately just a car. Still had to eat $10k. The worst part is the strain this puts on relationships, often destroying them.

Put me firmly in the "this is a bad idea" camp

 

[Brat]

Reading between the lines the house is in the Silicon Valley, probably in one of four communities. The home should retain its value. The husband can probably increase his earnings if he does good work and develops relationships in the community. Paying for this house will be a stretch for them for several years, they will be house poor.

One of my concerns is how the interest, control, of the property is sorted out in case of divorce. Be sure to document your contributions, and have an attorney prepare a document signed by the both of them that should they go into arrears on the mortgage you are authorized to buy/sell the property. I wouldn't do that through a POA as that could be revoked. This is as much to protect her as you. You really need a lawyer to prepare that.

I understand why her parents don't want her to sell the other house as there may be a property tax limitation associated if it is kept in the family.

 

[bbbamI]

An article from Kiplinger.....​

Kiplinger.com​

The pitfalls? Cosigners are on the hook for the payment if the mortgage holder doesn't make it. Plus, as a cosigner, your borrowing power is reduced because the mortgage obligation is on your credit report. If you choose to cosign, have an understanding -- in writing -- about when the borrower will refinance and remove you from the loan.​

Meanwhile, monitor the payment history to make sure that the mortgage holder is building good credit (so he or she will be able to refinance) and that you're not at risk. Insist on a reserve account, with two to three months' worth of payments, that requires both signatures for a withdrawal. ​

 

[FreeAtLast]

It sounds like it is a struggle just to get into the house. What about on going maintenance, taxes and insurance and start up costs like decorating for a house with that price tag?

 

[East Texas]

If you co-sign, you're putting your spouse at risk (don't think this debt only impacts you) as well as financial security for both of you. You must have had an 'uh oh' feeling or you would have already done this. Gut checks are a good thing.

I understand what bb said about having an understanding in writing. What if she loses her job? What if she suddenly becomes ill and can't make payments? What if she accepts a transfer with her job to another state? What if she divorces / marries? You can have all the written understandings you want; however, if she's unable to refinance you'll still be on the hook. Oh sure, you can take the written agreement to court to compel her to refinance to remove your name - that may not be actionable if she's not in a financial situation to do that.

This is just not a good idea.

 

[sheehs1]

Excellent point.
Funny things happen when the daisies sprout, or as my attorney termed it...people start "picking over the bones". Implied ownership can be tricky. Ownership as evidenced by legal documentation or by purchase document and/or receipt is irrefutable.

Exactly right freebird. Transactions such as this may have unintended consequences either way. Disappointed...it may be prudent to take a look at your will ....if you are on the title of this house. It might create an unintended imbalance for your beneficiaries.

 

[LightningDawg]

Buy the house, rent it to them. This would be a real estate investment for you. They can consider buying it from you in a few years.

 

[clifp]

When I first read the thread, I thought people are over reacting.Understandably banks are being very cautious are requiring co signatures and large downs. I can understand co-signing the loan if it is reasonably small amount of money and they can easily afford it.

However, after you posted the figured I'll join chorus of you are crazy. With 30% down the mortgage alone is $4,400 at that is only for people very good credit. You add in at least $1,000 /month for property tax and insurance and your niece and husband are forking out $65,000 a year for housing. That doesn't include any expenses associated with the other house or maintenance on this house.

On 105K salary I don't see how they have money to eat, much less make other payments (like repaying your down) and god forbid she loses her job. Contracting is notoriously cyclical business, I just don't see a lot of money being spent on remodels. California is desperately short of money, couples like your niece are prime targets for higher taxes.

The situation changes considerably if they sell the other house.

IMO you'd be doing your niece a huge favor, if you channelled Susie Orman, and told her. "Denied you can't afford it"

If on the other hand, you financial situation is such that you can step up and pay the mortgage even if it is underwater, or don't care about your credit rating , in short if losing a few hundred thousand ain't a big deal, than go for it.

 

[Disappointed]

Thanks everyone.

One of the reasons why I am willing to help is because financially I stand ready and able to buy the house in case they can't make it. I will then resell the house, any losses will come out of her end of the estate. But befoe I will have to step in,they have also verbally promised to sell the other house if they can't make it and try to pay off the mortgage on this new house by themselves. I am not counting on this promise, people do not always follow through on their promises especially when there are more than one person involved. I am more concerned of a divorce situation as things can get messy fairly quickly from what I have seen.

I will be talking to an attorney on partially holding the title on this property and its effect on the whole trust issue.

I did think about just buy the damn house and rent it to them but somehow I do not feel like doing so.

Worst case scenerio is I may be out a good chunck of money, again this will not have any impact on my retirement plan, my niece would be wasting a good chunck of money. I am hoping for the best and preparing for the worst.

mP

 

[haha]

Thanks everyone.

One of the reasons why I am willing to help is because financially I stand ready and able to buy the house in case they can't make it. I will then resell the house, any losses will come out of her end of the estate. But befoe I will have to step in,they have also verbally promised to sell the other house if they can't make it and try to pay off the mortgage on this new house by themselves. I am not counting on this promise, people do not always follow through on their promises especially when there are more than one person involved. I am more concerned of a divorce situation as things can get messy fairly quickly from what I have seen.

I will be talking to an attorney on partially holding the title on this property and its effect on the whole trust issue.

I did think about just buy the damn house and rent it to them but somehow I do not feel like doing so.

Worst case scenerio is I may be out a good chunck of money, again this will not have any impact on my retirement plan, my niece would be wasting a good chunck of money. I am hoping for the best and preparing for the worst.

mP

This is twilight zone. They own a house; let them rent it out and get a two bedroom apartment in the city with good schools. Kids in apartments go to the same schools as kids in $1.x million dollar houses. Likely a nice apartment will cost them no more than $2000/mo, anywhere but NYC.

Ha

 

[pb4uski]

Disappointed,

I'm afraid that I have to join the chorus here. It is great that your niece has you and her parents to help her and her husband out, but a $1.1 million home is beyond what a couple with $150-$200k of income can afford (which is obviously why the bank insists on a co-signer).

I have a bit of a different perspective from many of the other posters though. I am less concerned with the effect on you since from what you have indicated it seems that you could afford if things go wrong. I am more concerned about the effect on your niece, her husband (as a couple) and their son.

While I know your motives are good, I think you and your niece's parents may be doing her and her husband a great disservice by enableing them to a lifestyle that is beyond their means. I presume that you and her parents are in a position to provie such generous help by living within your means and saving and investing.

Will their means "fit" with their neighbors who presumably have higher incomes? While they will have a great house, will they be able to afford the cars, vacations, summer camps, and other aspects of life that their neighbors have or will they be the odd couple out? If things turn bad what will this do to their marriage and her self-esteem?

My advice is that you help your niece in a different way. Why did the husband's parents ask them not to sell the $600-$650k house? If they buy the $1.1m house, what would they do with the $600-650k house?

If you decide to proceed, i'd rather see you buy the $600-$650k house from them and rent it or sell it than co-sign on a $700k+ loan.

 

[ERD50]

This is twilight zone.

Ha

I was ready for a bunch of multi-quotes and "+1"'s, but that sums it all up.

Stop, take a breath and think about this.

-ERD50

 

[FreeAtLast]

You could always help them pay for private school if schooling is the biggest issue.

 

[Bestwifeever]

They're going to be paying a lot in property taxes for a $1 million plus house AND a $600K house, aren't they? How much of their income will that take?

But I wish you were my uncle .

 

[East Texas]

Recently the parents of the husband gifted them a house worth around $600,000-$650,000.

I would not be surprise if her in-laws are [-]absolutely pissed[/-] upset about giving them [-]an expensive[/-] a perfectly good house that they don't think is good enough. Your niece needs a serious reality check.

 

[REWahoo]

I'm late to this thread and only have two comments:

Should you go forward with this your forum name likely foretells the outcome.

Perhaps you should ask the mods to change it to Uncle Sugar Daddy...

 

[travelover]

Sadly, as others have pointed out, this could easily ruin your relationship with your niece which is, I'm sure, exactly the opposite of your intentions. She can't afford to buy or maintain this home and if you or someone else doesn't keep subsidizing her lifestyle, she may well default and there will be hard feelings.

 

[donheff]

One of the reasons why I am willing to help is because financially I stand ready and able to buy the house in case they can't make it. I will then resell the house, any losses will come out of her end of the estate.

As a simple cosigner you will be responsible for the payment but won't be free to sell the house. If you are on the title (and could force a sale) you will still need a contract to identify how much is your vs theirs and will face all of the problems others pointed out above. Consider this as a simple cosigner: your neice dies in a car accident and not fully trusted hubby can't make the payment but refuses to leave the house. What do you do?

I will be talking to an attorney on partially holding the title on this property and its effect on the whole trust issue.

I did think about just buy the damn house and rent it to them but somehow I do not feel like doing so.

Good on the attorney. On buying the house, what about my suggestion that you buy it and sell it to them financing the sale? That would achieve their objectives and protect you if things don't work out as you forsee.

Also, take a look at some of your language in this and previous posts (e.g., "the damn house) - you are obviously not happy with this situation. What makes you think that will get better?

 

[Silver]

I'm available for adoption. May I be your niece as well? You won't be disappointed.

 

[sheehs1]

An article from Kiplinger.....​

Meanwhile, monitor the payment history to make sure that the mortgage holder is building good credit (so he or she will be able to refinance) and that you're not at risk. Insist on a reserve account, with two to three months' worth of payments, that requires both signatures for a withdrawal. ​

This made me think about Helocs or Equity Lines against the equity in this million dollar plus house. If you inject substantial $$ and cosign.......might be a good idea...to put some legal verbiage around this possibility. Might want to think thru (with your lawyer) how this could impact things. Such as ...if you only cosign but are not on the mortgage, "can they get an equity line without your knowledge?" - or- "what about refinancing down the road"...to take equity out?"
Of course...considering what you have written...this may not be an issue for you.

 

[Texas Proud]

Disappointed....

IMO, you are missing a lot of what some here are saying... so, I will be blunt like some other poster...

They can not afford the place.. so any way you slice and dice.. it is not a good idea for them to buy this place... much less buy it when they already have a house...

You are not teaching your niece good finances..... she will be back for more and more... who cares if you can afford it... the point is SHE can not afford it and should wait until she can...


Also, a rule of thumb is to buy a house that is 3X to 3.5X your salary... from what you say that is $185K in good times.. so the max house they should buy is about $600K.....


Soooo, a bad idea on their part... and a bad idea on your part... and also a bad idea on her parents part...



PS... if their schools they are in are 'bad' (probably not), then buying a house that is very costly is not the way to go... just pay for private school...

 

[sheehs1]

Good on the attorney. On buying the house, what about my suggestion that you buy it and sell it to them financing the sale? That would achieve their objectives and protect you if things don't work out as you forsee.

A

+1....+1....+1

...and when your estate comes into play...they can pay off your estate with their inheritance...protecting both you, your wife and your estate.

 

[52andout]

You have gotten a lot of great advice. I'll add two more.

I would give them a copy of "Your Money or Your Live" and "The millionaire next door". They both emphasize living below your means. Obviously they will be living well above their means if they take on such huge debt.

I would not trust moving to any public school district today. You don't have to be a genius to see all around the country funds are being cut and teachers vilified. I would not be surprised to see more and more private schools popping up as our public schools suffer.

 

[East Texas]

The most unfortunate part of this whole thing is the niece is being taught it's OK to live beyond her means. One of these days the "economic outpatient care" will run out and the bill collectors will start calling and she'll have absolutely no idea as to what went wrong.

If you want to know the true character of a person, don't give them money - give them power.

It must be nice to be in a position to control the financial destiny of generations. Well, I guess as long as they stay on your good side.

 

[FreqFlyer]

While I know your motives are good, I think you and your niece's parents may be doing her and her husband a great disservice by enableing them to a lifestyle that is beyond their means. I presume that you and her parents are in a position to provie such generous help by living within your means and saving and investing.

my thoughts exactly