Question: My grandmother asked me to sign as co-owner with my mother for the house she is buying because my mother has poor credit. She figures my good credit will help our odds at getting the house. My mother even said the payments for the new house are too much. To get over these obstacles my mom will rent the first floor of the new house to a roommate, my grandmother will help with the mortgage payments, and I will sign as co-owner of the house. I’m worried because I’m 26 and still live at home with my mom and I made plans to move into an apartment by this December. My credit is not that great but I’ve worked hard to make all my payments on time and keep a steady work history. I was told that I would not be financially tied to the mortgage if I co-signed because I could do a quit claim deed after the purchase of the house closed and I’d be free. I don’t think things are that easy and I’ve seen crap happen before. As much as I love my mom, I don’t feel comfortable being financially tied to her (other than living at home and paying bills). She’s gone into bankruptcy before and her houses have nearly gone into foreclosure. I don’t want to end up like her, but I also want to help. Is this quit claim deed idea as easy as it sounds? Would this affect my chances of getting an apartment this December? How could this affect my credit? As you can see, I don’t know anything about real estate; I just know how important good credit is.
Answer: Your instincts are correct, this is a very bad deal for you. Here’s why:
Signing a quit claim deed does not take you off the hook for the mortgage. In fact it puts you in the terrible position of being 100 percent responsible for the mortgage payments but having no ownership interest in the house.
This is one of the most common misunderstandings about how a quit claim deed works. As its name implies, all a quit claim deed does is give up (“quit”) any ownership interest that you have in a piece of property. It does not affect any loans or liens in your name that are attached to that property. When you apply for a mortgage as a co-borrower, your name remains on the loan documents until it is paid off. You cannot get off the mortgage unless your mother refinances the loan based on her income and credit only; and you have said that is not possible.
I know you love your mother, but if her credit is really that bad it means she has not had a good history of paying her bills on time. That is not a situation you want to get involved in because your credit will get trashed too, and if your mother can’t afford to make the house payments, she will probably lose the house to foreclosure. You say she has almost done that before.
I know how difficult it is to say “no” to your mother or any other family member, but you have to think of this as a business deal and it is a very bad deal for you. You have much to risk and nothing to gain by being on the loan with your mother. I strongly advised you not to do this. Even your mother has acknowledged that she really can’t afford the mortgage payments, so you are actually doing her a favor by preventing her from buying the house and digging yet another financial hole for herself.
Even if you did want to proceed with this deal, you would probably have a very difficult time getting approved for a mortgage with today’s tight underwriting standards. The old days of lenders giving away money to people who really could not afford the mortgage payments are over. Today, you need to prove that you have sufficient income and a decent credit rating to be approved for a loan.
But as I said above, even if you did manage to get approved for a mortgage by being a co-borrower with your mother I think it would be a very bad idea for you. I hate to cause problems in your family, but you are young and you need to protect your credit rating so that you don’t end up in bankruptcy someday like your mother has in the past.
Send your real estate questions to Steve Tytler, The Herald, P.O.Box 930, Everett. WA 98206, or e-mail him at economy@heraldnet.com.
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