Co-Signing a mortgage - mortgage interest deduction question.

[Disappointed]

My niece asked me to co-sign a mortage which I am willing to do. She will be making payments all on her own, will she be able to take full deduction of the mortgage interest at the end of the year and I am taking none?

Just want to help her out. My name may be on the title as well.

mP

 

[rescueme]

One simple question. What would she do if you were not willing to co-sign? Apparently the lender believes her financial resources will not allow her to cover the required payments, and she is looking to you to "share the risk".

I would bet she would probably buy a lower priced home she could afford rather than the one that you are assisting her in buying.

As for me? I would never co-sign for anything other than a low-balance, low length loan (such as a few years, for a car). You are on the hook for the entire balance due if anything would happen to her, or starts missing payments for any reason, such as a currently unknown "lifestyle change" in the future.

If you still feel you must help, would it make more sense to make a cash gift to lower the amount of the note?

 

[HpRyder]

Bad idea to cosign a mortgage. It obligates you for the payments, but does not give you property control. A friend has this exact situation. He gave his marrying daughter a condo by having it titled in her name, but he cosigned the loan. Fast forward 5 years. He learned his daughter and her husband have been lying about how much they earn and now can not make the payments. They tried to sell the place but cannot even short sale it. They moved out and into the mother-in-laws place under a work for rent arrangement. The husband refuses to sign a quit claim title, hence my friend cannot gain property control. He is stuck making a couple of thousand dollar payments every month which he can barely afford, he cannot sell it nor can he rent it out since he doesn’t own it. So rather than sue his daughter & her husband, he’s letting the bank foreclose on it and get ruined credit. His daughter’s credit is already ruined so she doesn’t care.

Cosigning in your case is a very very bad idea. But if you do it consult an attorney so you get automatic full property control if they don't make the payments. If you cannot get property control don't cosign.

 

[haha]

Cosigning in your case is a very very bad idea. But if you do it consult an attorney so you get automatic full property control if they don't make the payments. If you cannot get property control don't cosign.

Very good analysis of why this should never be done. Credit worthy buyers get normal channel credit.

Ha

 

[Disappointed]

Great advices above. Unfortunately this is the only thing she has ever asked for.
I am more concerned about her husband than my niece, however, looks like I am going to have to help her out. I will be on the title (have not decided on how to take title yet). I will be loaning her some money as well so she can reduce the mortgage amount to avoid a jumbo loan.

I am trying to find out if she can take full deduction on the mortgage interest with me co-signing on the loan. I do not need the deduction.

mP

 

[rescueme]

I am trying to find out if she can take full deduction on the mortgage interest with me co-signing on the loan. I do not need the deduction.

mP

I'm no lawyer, but since the payments would come from "her account" (regardless of your participation), I would think the mortgage deducton (for as long as it lasts, depending on future tax changes) would go to her...

BTW, not to sound so negative but I know of cases where this was a risky venture for some parties. Good luck to you...

 

[travelover]

Agree with the others, there is extreme risk for you but virtually no upside. This could turn out really badly.

 

[lemming]

My first reaction was as expected. NOOOOO do not want. bad idea.
But your question about the taxes- the deduction applies to a primary residence and to the person who pays the interest. It would be possible for no one to claim the deduction if say mama paid the mortgage for a son's home. Nobody wins. PS I KNOW NOTHING-(taxes or otherwise)why are you listening to my advice?
Gifting her enough money to make a substantial downpayment-if that's a solution it is not a awful one.
watch the gift tax limit One person 2011 $13k.

 

[donheff]

Why not listen to what people are saying and at least take steps to insure that you could take control in the event of a default? You don't have confidence in the niece's husband and you have a good story above about what can happen if the husband becomes a jerk.

 

[haha]

Why not listen to what people are saying and at least take steps to insure that you could take control in the event of a default? You don't have confidence in the niece's husband and you have a good story above about what can happen if the husband becomes a jerk.

I intend no disrespect to the OP, but over the years we have seen occasional posts from people who were fixated on a particular course, and who resist or outright reject any modifications suggested by other members.

More than once these schemes have come a cropper. It seems that a second mortgage might be something to consider in lieu of the guarantee, if a simple refusal is not to be considered.

Ha

 

[JOHNNIE36]

Disappointed, you will be very DISAPPOINTED, if for some reason your neice is not able to continue making payments. To cosign is to put you on the note with her making you responsiuble. My wife did this to me last summer trying to help out her sister and BIL on a house purchase. Not only cosign but help on the purchase by loaning them $5000. Lucky for me the real estate deal fell through and I was able to sleep again. I told her, don't ever do that again. She thought because we cosigned for them on a car years ago and didn't get burned, that this would be OK also. Have you read any posts that said this was a good idea? Don't do it! What ever excuse you can come up with, don't do it.

 

[Ally]

If you cosign, only do it if you can afford to take over the payments and house. We were cosigners for my DH's son's loan once for $9000 and he only made 2 payments, so we paid the rest. Since this happened 6 years ago, he was embarrassed and no longer will talk to us. We didn't even scold him, but it really destroyed the limited relationship we did have with him. I hope it goes better with your niece. Since there is a husband, I wonder if you are also cosigning for him?

I know you didn't want advice like this, but I wanted to say that sometimes it ruins the relationship.

 

[Trawler]

I understand you want to help your niece purchase a home however not knowing why she cannot borrow on her own is a big red flag that you would want to fully understand so you know the risk you are taking by cosigning. If you decide to say no you may be helping her more.

 

[Martha]

Great advices above. Unfortunately this is the only thing she has ever asked for.
I am more concerned about her husband than my niece, however, looks like I am going to have to help her out. I will be on the title (have not decided on how to take title yet). I will be loaning her some money as well so she can reduce the mortgage amount to avoid a jumbo loan.

I am trying to find out if she can take full deduction on the mortgage interest with me co-signing on the loan. I do not need the deduction.

mP

I would talk to a lawyer about how to protect your interest. Having your name "on the title" can create some confusing situations. For example, say your niece pays off the mortgage and pays you off. Do you transfer title back to them? That arguably is a gift. What if they don't pay? They are still on the title with you. What do you do then? You also would need liability insurance as you are an owner.

There are other options to protect your interest, such as a second mortgage.

If she makes the payments she should be able to take the mortgage interest deduction.

See my signature.

 

[soupcxan]

You mentioned this could be a jumbo loan >$417k, it really sounds like they cannot afford this much house. Why not buy something cheaper? You're about to be on the hook for half a mil of debt and no asset to show for it...

 

[Disappointed]

Thanks all for the thoughtful advices.

This house will cost around $1.13 mm, she is trying to seize this opprtunity while the interest rate is low to buy this house. She will need help with down payment so she can qualify for a conforming loan, CA conforming is about $7xx,000.00. Which means that the down payment will be around $500,000. I think she can come up with about $300,000 from herself and her mom/dad. I may loan her $200,000 for additional down payment.

Her husband is a small contractor (remodel bath/kitchen) whose income fluctuates and my niece earns about $105,000/yr. The husband's income can fluctuate between $40,000 to $80,000, they have one boy. Recently the parents of the husband gifted them a house worth around $600,000-$650,000. The husband's parents do not want them to sell the house unless it is absolutely necessary. The parents asked them to try for couple of years, and if they can't handle the payments then sell the house to reduce the loan (refi down the principal).

I think they are stretching themselves thin for this situation without selling the house. They are trying to buy a house in this city because of the excellent schools, the boy is three years old.

I do have the financial resouce to buy the hosue out right if needed but I do not want to do so. I am not worry too much about my niece flaking out as she is quite a responsible person. Her husband seems to be nice but I do not know him that well and that is the only concern.

My wife and I do not have children and eventually our estate will be passed on to my niece, nephew, and my wife's nices and nephews.

I do not like this situation one bit but she is my brother's daughter.

As for not gifting the money to my niece out right, I am not willing to do it at this point, she will inherit part of my estate when I die.

She also wants me to be on the title, kind of portecting her interest just in case, so it may look like I own 50% and her husband and herself own 50%.

She is ready to make an offer on a house today and I will be signing an offer with her.

 

[jayc]

I will be loaning her some money as well so she can reduce the mortgage amount to avoid a jumbo loan.

mP

I would not cosign, ever. Is the above not enough of a clue that she is getting in over her head. Let alone that the bank will not give a conventional loan.

If you are dead set on this, you should buy the house and rent it out to her. Then the end results is the same but you have control.

 

[donheff]

Sounds completely crazy. If you are going to pursue this why don't you buy the house outright and then sell it to her at the interest rate she would get from the bank? Then, if things go south you could repossess the house. that couldn't be worse than being on the owing end of the loan with no assets.

 

[jayc]

I do not like this situation one bit but she is my brother's daughter.

What has building a house of cards by them while using your money got to do with family. Sometimes a bad idea is just a bad idea no matter who thought it up.

Have you or them not followed any real estate history in the last 3 years.

This is Daja Vu all over again.

 

[freebird5825]

Three words...Run like hell

You may shoot me for that comment, and I will gladly take the bullets...
but when "love = money" is part of the reason to enter into a co-signing arrangement of this magnitude, you really need to step back and evaluate the situation.

It is your money and your risk. I wish you luck.

 

[East Texas]

Are you in a position to make each and every payment from now until the loan is paid off? That's what will happen if your niece's circumstances change even one little bit. If she quits making the payments (e.g. lost her job) you're on the hook.

We have a hard and fast rule against co-signing for anyone for any reason. If someone needs a co-signer, one of two things has happened: they have crappy credit and therefore have proven they are unable to handle their finances or they are buying something they simply cannot afford on their own income.

Run... seriously... run... I realize this is the only thing she's ever asked of you. It was inappropriate of her to put you in such a position. You need to tell her no and not defend your position or then it becomes a "convince me I'm wrong" discussion.

This is such a bad idea, especially in today's high unemployment.

 

[MissMolly]

Yes, your niece will be able to take the full deduction. A mortgage servicer can only report one SS# to the IRS for 1098 reporting. Assuming your niece will be listed as the primary borrower, all 1098 infomation will be reported on her SS#.

 

[sheehs1]

Disappointed...it sounds like you have made your mind up where this is concerned and that you have the financial resources to deal with it should the deal go bad at some point in the future. Consider the absolutely worst case scenario...whether it be divorce with the husband throwing the property into foreclosure..(of course before it got there, the banks will come to you first)....or...if "god forbid" something actually happened to your niece. If you can live with the absolutely worst case scenario.. then so be it.
I'm not trying to be morbid here but ...life happens. A friends 10 year old son was just diagnosed with a brain stem brain tumor...and was struck at "what bad cards" some are dealt.

That said...my own daughter recently purchased a condo and before she signed on the dotted line, I flat out told her I would not cosign and I told her why. (If something happened to her, I didn't want that liability, her Dad and I have our own plans...etc.) As it was, she didn't need me to cosign. My own parents would never co-sign for any of their 4 children. There thinking was ...."you want this?...then you take ALL the responsibility for it" and if they won't lend you the money without us...well...then...it is something you shouldn't be doing anyway.".
Good luck to you.

 

[sheehs1]

Thanks all for the thoughtful advices.

She also wants me to be on the title, kind of portecting her interest just in case, so it may look like I own 50% and her husband and herself own 50%.

She is ready to make an offer on a house today and I will be signing an offer with her.

If you are on the title....won't this go into the calculation of your estate at your death as one of your assets? Any possible problems created with this? Such as ...your will stating things in "percentages"....such that this part of the house gets included in the percentage amount you leave to her (net affect of actually decreasing what you intended for her to have and increasing what the others get)...?
Just thinking out loud here.....

 

[freebird5825]

If you are on the title....won't this go into the calculation of your estate at your death as one of your assets? Any possible problems created with this? Such as ...your will stating things in "percentages"....such that this part of the house gets included in the percentage amount you leave to her (net affect of actually decreasing what you intended for her to have and increasing what the others get)...?
Just thinking out loud here.....

Excellent point.
I am not an attorney, but I do believe your "audible thinking" is correct. Some of our forum members from the legal profession may chime in on this one.
Would a direct bequest (to the niece) of Disappointed's share in the dual-titled property override any other percentages language in the Will?
I've been an Executrix twice. 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.