Mary Canning, dean emeritus of Golden Gate University’s School of Taxation and Accounting, was recently interviewed for a Wall Street Journal article that offered advice to first time home buyers who are considering having their parents co-sign on a mortgage.
An additional option noted in the article is that of an investment-property mortgage, in which, for example, parents can buy a multi-family residence and rent one unit to a child while generating income from renting the other units in order to cover mortgage payments.
“Once a property is classified as investment, owners may…benefit from tax deductions for repairs and improvements,” said Canning, noting the advantages to parents who co-sign as ‘non-occupant owners’.
More and more millennials have been able to qualify for mortgages thanks to the improving economy. These economic conditions have spurred some millennials to seek ‘jumbo loans’, in high priced locations such as San Francisco and New York. A common scenario finds first time buyers in well-paying jobs but unable to qualify for a mortgage because they have not been employed for long enough.
The practice of parents co-signing on a non-investment property is rather rare, with only a few lenders allowing relatives to do so. TD bank allows parental co-signature, while Quicken Loans and Citi Mortgage do not. There are several factors parents should consider in a co-signing arrangement, the article notes. Liability is one obvious concern. In the event that a child loses a job, the parent is at risk of a damaged credit score. Estate issues and tax benefits should also be examined.