Mortgage co-signer?

Question

My mother in law and her husband want to buy their first house in maryland. My problem is they want my husband to co-sign for the loan because of her credit. They say my husband has better credit that way they would have 2 loans at 6.375 and another at 6.50 instead of 6.375 and 11.00 . Now they also say in a few months my husband can take his name off the mortgage. That is what I would like to know. After 3 or 4 months can he take his name off the mortgage or do it have to be on for the remainder of the loan?

Answer 1

First off, the lenders look at the lowest of all borrowers middle credit score so it wouldn't make that much difference. 2nd, there is NO second lien out there at 6.375% unless it is a short term balloon even with perfect credit (see https://www.ibcfirstequity.com/ and http://www.certifiedfunding.net/rate_sheets.html) . Texas gets awesome second lien rates compared to other states too.
3rd, your husband will be on the loan until it is paid off.
4th, as an example, the difference on a 30k 2nd lien at 11% vs. 6.375% (if it were available) is only $96 a month. I would rather lend them $96 a month than risk my credit. You could also give them the 2nd lien yourself and get a good return of say 8% and be in a position to foreclose if things got out of hand.

In my humble opinion, I would not co-sign anything but instead help them improve their credit score so they can buy it themselves or do the above. Have them go to communityempower.com and follow their plan and see how much it helps their score. Money and relatives don't mix...

Answer 2

The only way his name can come off the loan is if they re-mortgage the property. If they cannot get a loan now I do not see that changing in 3-4 months. Let them take the two loans and after 3-4 months if they have improved their credit the 11% loan should be able to be refinanced by them. That is unless you and your husband can financially be responsible for the co-signment. Me I would not do it.

Answer 3

If he cosigns, the mortgage will be filed at the county and will appear on his credit report until the loan is paid in full, either by a refinance or property sale. He can be removed from title on the house fairly easily be filing a quit-claim deed or similar from the county, but won't be removed from mortgage. Keep in mind that if you plan on purchasing or using your credit that mortgage debt will be counted against him as well, so try to think ahead before you do any cosigning. Any late payments, foreclosures, etc will affect his score as well.

Answer 4

i do not think he can just remove his name unless they refinance in three or four months. i would take the lowest interest rate they can get without a co signer. is there a chance they could default ? emergencies happen, people lose jobs/benefits, get really sick and can't keep up with payments. can you cover their mortgage a few months if it absolutely became necessary ? the interest rate is usually tax deductable anyway not sure why the really small difference 6.3 vs. 6.5 would matter all that much. seems like more expensive to refinance in a few months. especially if rates continue to climb. good luck.

Answer 5

I would be very weary of that situation. I would never co-sign for anyone's mortgage, but that's just me. They need to either fix there credit and wait to buy, or suck it up with the high interest rate. That is going to be a huge burden on you and your husband that you will have to deal with for years.

Answer 6

In order to get his name off the loan once on it, they'll need to refinance it.

Answer 7

To co-sign would be a long term affair. Good luck.