Cosigning a Rental Lease Affect Ability to get Investment Loan?

6 Replies

Hello,

I'm still a total newbie/wannabe investor. My short-term goal is to buy a place in Denver that I can house hack easily, namely a duplex or multiplex, so I can get others to pay for my mortgage. I'm still house hunting, but I'll need to finance the property and am currently weighing my options between conventional, hard money, or FHA.

Meanwhile, my brother in Los Angeles is asking for my help to obtain an apartment.  He needs a cosigner and I'm willing to help him out.

My question is:  If my name is attached to his rental agreement, will that affect my ability to obtain future investments loans?  Will a bank or lender weigh this when considering me for a loan?  Does a lease agreement even show up on a credit report?  

Thanks,

Brian

I highly doubt a landlord in CA would put that on your credit report unless you OR YOUR BROTHER, was delinquent.

Just so you know, hard money lenders don't lend to owner occupants. It will take a miracle to get an FHA offer accepted on a property in this market. Plus you don't want to pay the funding fee.

Look at a 3 or 5% down conventional loan. @Jared Bouzek is a lender on the forum here that would be able to help.

Hi Matt! Yea, I’d heard FHA Loans are all but impossible to get sellers to accept. It sucks. I’ll certainly reach out to Jared when the time comes!! Thanks for the info!

@Brian Pollock I'm sure you know this but it's not a great idea to be a cosigner (even for your brother). Shame on him for asking you. When you cosign, all of his problems become your problems because if he falls behind on rent, you are the one that will have to fill the gap. It's not just from poor money management but what if he was in a car accident and couldn't work and was shut in a hospital. He could pay rent, the management company would look to you to fill the gap and you would be so far away you couldn't physically help. People who cosign believe in the people they sign for but don't realize that there are tons of things that can go wrong and leave the cosigner on the hook that have nothing to the willingness of the borrower or tenant to pay.

Also keep in mind how uncomfortable Thanksgiving dinner would be if your brother can't afford the property and then ends up defaulting and owing you money. Usually turns out that one or the other doesn't show up because the situation is to awkward. 

Personally, if someone wants something that the seller says they can't afford, that's a pretty good sign that I want no part of the financial transaction unless non-performance is built into the outcome.

Brian,

No, it won’t show up on a credit report. But, you WILL be doing something unethical, and possibly illegal (fraud) if you do not disclose this to your lender. if you do disclose it, they will reduce your income available to qualify for a loan by the amount of your brother’s monthly rent. That will have a huge impact on how much you can borrow. I’d ask my lender directly how this situation is handled

No a lease is not a publicly recorded lien and will not show up when your lender pulls credit.

@Brian Pollock So I guess there are two answers to this. The technical answer is that if you are obligated on a liability such as your brother's lease, you would need to show that he has paid the rent on time from his own funds for 12 months in order to exclude the debt from your liabilities. This would be accomplished by him providing 12 months of cancelled on-time rent checks.

The other side of the coin is that I've only seen a rent payment show up on somebody's credit two or three times, so if you did not disclose that to your lender, my guess is that they are unlikely to find out you have co-signed with him. Obviously I'm not advocating this. I'm just saying that I've done many loans for people, and if they did not disclose to me that they co-signed on something, I would have no way of knowing if it didn't show up on their credit.

If his landlord pulls your credit as part of the process to qualify your brother, that inquiry will show on your credit for a period of time and the lender will ask you for an explanation of it. So if you decide to co-sign, your cleanest route to excluding it from your DTI would be to wait until you can show 12 months of on-time payments by your brother.

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