Having a co-borrower?

Question

As stated in my introduction post, I am 20 years old.  I am about a year away from my undergrad.  So, after graduating, I will either be in grad school or have a job somewhere not in my current location and likely not current state.  Is co-borrowing common in today's climate? I don't have much credit and highly doubt I could qualify for a loan on my own.  I will likely be in a college town in the Midwest (East Lansing, MI, Bloomington, IN, Urbana, IL etc).  So, my parents have agreed to co-borrow if it would help me.  From my understanding, after a year or so, if proof is shown that I was the one paying the mortgage, I would be awarded the full mortgage.  If that isn't so, let me know.  But, after this long post, I basically want to know if my parents co-borrowing will help me and if it is common today? 
I will be looking to purchase in 10-12 months.

Cody Lown · Answer

Ophelia,

Thanks for the tips. That is definitely something to think about. Unfortunately, my job would likely not be in my degree.  I am getting a Geography degree.  I would either be committing to a 2 year teaching job or be in grad school.  So, although I may be teaching geography, I don't think it would apply.  I agree that it would be more satisfying to have it on my own.  My future beyond undergrad really isn't decided and won't be decided until about February, but these are definitely things to be thinking about.  Thanks Ophelia

Cody

Ophelia Nicholson · Answer

Hi Cody,
 Depending on how much the mortgage payment is per month you might not need a coborrower-FHA allows for people who have a degree and a job to get a mortgage provided that the job is in the same line of work as the degree.
So for instance you cant go get a degree in math and get a job as a dog trainer and say hey I don't have two year job history but I have a degree. However you can get a degree in teaching or accounting and then get a job as a teacher or an accountant and that works fine.
What you need to do at this point is like others suggested, check your credit, if there is stuff to clean up do it now, if there is nothing you can establish a few credit cards that will be a year old by the time you are ready to buy.
The next thing you need to do is save some money, If you are going to buy 100k house then $5000 just use the 5% saving so that when the time rolls around you are ready with credit, funds and a job.
I would caution you against coborrowering with your parents- Its wonderful to have great parents but the reality is alot of times parents cosign for kids and things happen down the road and the parents credit gets ruined so if possible you want to stay away from that and its great to say I did it on my own.

Cody Lown · Answer

Sondra,

wow thanks for the expert advice and tips.  When I get a chance, I will send you a message.
Thanks for all the tips and advice from all posters.  This has been really helpful and only strengthens my desire to learn more.

Cody

Sondra Marks · Answer

Since you plan on living in the home, your best bet is probably an FHA loan.  FHA accepts coborrowers readily.  You and your coborrowers will have to qualify for the new mortgage, which can only be determined by a lender.  In addition, FHA historically has the lowest down payment requirements and those funds can be gifted by a family member.  You can typically get the seller to agree to pay 3% of your closing costs.

Before going into this, make certain you have a plan for when you are able to refinance so that you can remove the coborrowers.  That is the only way to get the loan solely in your name.  Again, a candid and comprehensive discussion with a good lender should be able to provide you with your options.

My recommendation is to find a good lender and/or real estate agent first.  Talk to friends and family members and get recommendations.

The good ones, will treat you with respect, find out your goals first, determine and explain the various pathways to your goals from which you can make an informed decision.

If you are waiting a year, you may also want to establish credit wisely.  You could get a secured credit card, use it for normal expenses, AND BE CERTAIN TO PAY OFF THE FULL BALANCE EACH AND EVERY MONTH.   Many of the problems I encounter in getting people into a home is the misuse of credit.

I've been an agent 32 years - if you have any questions feel free to contact me sondra@sondramarks.com.  I don't work in your area but would be happy to answer any questions.

Cody Lown · Answer

Jim,

I agree with you on college being a relative waste of money.  The only way I am going to pursue a masters is if it is fully funded (tuition+living stipend).  A liberal arts masters degree is important to me but would not pay off when it would cost $50,000 and I would lose 2 years of earnings.

I will check my credit and search around for some other options.  Right now, co-borrowing looks like it fits, but I will continue to look.

Cody Lown · Answer

The co-borrower would be signing to co-borrow on a house that I would be living in.  
Yes, I do work.  I work 18-25 hours a week and have been for 2 years or so now.  I also pay rent and have had my name on a lease for about 2 years.  
The teaching position with Teach for America would be a 2 year commitment directly after graduating.  I will look into it, but I'm not sure what benefits I would qualify for this way. Definitely something to look into though.  
Ideally, I would be able to live in the home for 2 years while doing TFA and then for 2 more years while I pursue a masters.  
It sounds like co-borrowing is still common. I hadn't heard anything about it lately.  Thanks for the advice.

Cody

Jim Stardust · Answer

At 20 years and a year away from graduation, I think you'll have some credit.  Have you checked your credit file (free at annualcreditreport.com) or your credit score (also can get free through Credit Karma)?

Are you working now?  Do you have any steady income?  If not, why not?  You can work and go to college at the same time.  I may be jaded but I think college education is the biggest waste of money with few exceptions (engineering, medical, law) and I have a post graduate degree.  If you're here, it means you're interested in becoming a real-estate investor.  To get there, there are some great programs for first time buyers.  You stated in your introductory post that you may be teaching, if you're going to be a teacher, there are some great programs, search for HUD GNND program.

Lastly, and to answer your question directly, I think you should be able to obtain a loan if your parents agree to be co-signers.  After a year or so, if you have a steady job or if you turn the place into an investment property, you can refinance it into your name.

J Scott · Answer

You don't say what you're borrowing for -- is this for a house for you to live in?  Or for an investment property for you to own?

Certainly, most conventional lenders (the large and medium sized banks that give loans) are going to be fine with a co-borrower, as long as the combined finances of the borrowers meets their guidelines.  But, I've never heard of a major lender moving the mortgage into the name of just one of the co-borrowers after the papers were signed, regardless of who's paying.

Think about it from their perspective -- if they have multiple people on the mortgage (more guarantee that they'll get payment from SOMEONE), why would they voluntarily choose to incur more risk by taking some of them off?

Expect that all co-borrowers will be on the loan for the entire term, unless you refi...