Co-sign a Mortgage for Your Kid? 5 Reasons to Think Twice Before You Do

It’s natural to want to help your child. But first assess the risk to your finances — and your relationship

Diane Harris,

AARP

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Published October 08, 2024

a father and daughter sit on a seesaw on a house signing a document

Jon Krause

When the oldest of Cherie Jenkins’ four children recently asked her to cosign the mortgage for his first home, Jenkins and her husband were quickly on board. Their son, 24, and his wife, 23, had solid credit scores and earned enough to cover payments for the $390,000, 1,800-square-foot starter house they wanted to buy in Kennewick, Washington. But the young couple hadn’t been at their jobs long enough — he works for the family construction business, she’s a marketing assistant at the real estate firm where Jenkins is an agent — to qualify for the loan on their own.

“They’re thinking about starting a family, and they were so excited about the house,” Jenkins says. “My mother heartstrings got pulled on.”

Now, though, as they near closing on the house, Jenkins admits to second thoughts. The financial documentation required has been a nightmare, she says. Plus, she and her husband may want to buy a new home themselves soon, and worry they won’t qualify with the extra debt from their son’s loan on their record. She’s also concerned that her younger kids will now expect the same treatment.

“I want to help my children, but I didn’t realize everything that cosigning entails,” says Jenkins, 49. “If I were asked to do it again, I’m not sure my answer would still be yes.”

It’s a question many parents are grappling with these days as record-high home prices and mortgage rates that have more than doubled since the pandemic prompt more first-time homebuyers to turn to the bank of Mom and Dad for help. According to Freddie Mac, 3.7 percent of young homebuyers (ages 25 to 34) relied on older cosigners for mortgage approval in 2022, the highest share since 2015. A separate analysis of mortgage data by real estate brokerage Redfin found the trend continued last year.

Overall, some 7 percent of parents have cosigned a mortgage for their child, including 17 percent of those who earn $100,000 or more, a 2022 LendingTree survey found. Tellingly, nearly half said they ended up regretting their decision.

“It’s natural to want to help your kids, but there are some instances where cosigning is more feasible than others,” says LendingTree senior economist Jacob Channel. “You don’t want to put your own finances at risk or strain your relationship with your child if things go south.”

If your child asks for your John Hancock on a mortgage, how do you ensure you’re not among those with cosigners’ remorse? Here’s what experts say to consider.

How will cosigning affect my finances?

When you agree to cosign a mortgage, lenders combine your financial standing with that of your child to determine whether to grant the loan and how much Junior can borrow. Having a cosigner with higher income and a longer, stronger work and credit history on the application greatly increases the chances your child will be approved, and for a higher amount than he’d get on his own.

The rub: You are legally on the hook for that debt, even though you won’t have any equity in the house. The mortgage can show up on your credit report as if you had taken out the loan yourself, and your credit score and debt-to-income ratio — how much you’ve borrowed relative to how much you make — will take a hit. That in turn could affect your own approval for a loan if you’re planning to borrow money to buy, say, a new car or a home in the next few years, as well as the interest rate you’d pay.

“Even if everything is sunshine and rainbows in terms of your child’s ability to make the mortgage payments, you’re taking a risk,” warns Channel.

That risk grows exponentially if your child falls behind on the mortgage payments or is laid off and can’t make them at all. “Even one missed mortgage payment can really hurt your credit score — in some cases, by as much as 100 points,” says Gretchen Brightman, a mortgage adviser with Hixon Mortgage in Kennewick, Washington.

If it’s a temporary blip and your child resumes timely payments, you can recover quickly. But if you need to step in and pay the mortgage yourself until the house can be sold or until your kid resumes payments, your own finances and retirement plans could be upended.

“Unlike your child, you may not have a lot of years left in the workforce to make up lost ground,” says certified financial planner Elaine King, founder of the Family and Money Matters Institute in Miami. “Your kid can always get another mortgage, but there is no loan for retirement.”

Why does my child need my help?

Understanding the reason your child needs a cosigner can help you determine just how big the financial risk is.

Is your daughter generally responsible with money but having trouble qualifying for a mortgage because her credit or job history is too short? Is your son’s income just below the level needed for approval, or so far off that he could have trouble making the payments? Is his credit score too low because he has big credit card balances, or is it a little lower than the threshold due to a single missed payment a few years ago that will soon fall off his record?

“You know your child best,” says Jennifer Stevenson, owner of Blue Heron Realty in Ogdensburg, New York. “If your gut tells you cosigning is a bad idea, don’t do it.”

To realistically evaluate the situation, sit down with your child to review her financial statements and work up a budget. Or consider meeting with a fee-only financial planner to get a dispassionate assessment; you can find one through the National Association of Personal Financial Advisors (NAPFA). “You want to make sure you’re basing your decision on facts, not hopes,” Stevenson says.

What will the impact be on my family?

In addition to purely financial factors, think about the possible emotional fallout. “If your child falls behind on payments or can’t make them at all, and it messes up your credit and savings, there can be a lot of hard feelings,” says Keith Gumbinger, vice president of HSH.com, which publishes consumer loan information. “Relationships can be damaged or destroyed.”

To help ward off problems, talk frankly with your child about your expectations around cosigning and consider putting some safeguards in place. For example, you might ask for the lender to send monthly statements to you as well as your child, so you can see that the mortgage is being paid on time — and, if not, stage an early intervention. Getting ahead of the problem can help, since there’s typically a 15-day grace period before a lender reports a missed payment on your credit report.

“Everyone has to go into this understanding what their rights and responsibilities are,” Gumbinger says.

Do I have a good exit strategy?

You don’t want to be on the hook for your child’s mortgage payments for the next 30 years. “Think about cosigning as a temporary solution to a temporary problem, and put a realistic time limit on your involvement,” suggests Daryl Fairweather, chief economist at Redfin.

Cherie Jenkins and her husband, for instance, have told their son they need to be off the mortgage in two years, and they expect him to either refinance or sell the house within that time frame. Some lenders may also allow you to petition to have your name taken off the loan if your child’s financial situation improves enough for him to qualify on his own.

Are there better alternatives?

For parents who can afford it, giving your child money for a bigger down payment could lower the monthly mortgage payments enough to tip the scales for loan approval from a lender without entwining your finances with your child’s for years.

Don’t have the means to do that? Offer assistance with the issues that are preventing your child from qualifying for a mortgage, King suggests. You might, say, pay for sessions with a credit counselor if he or she is carrying too much debt, or help out with courses for a certification that could lead to a higher salary.

“Parents aren’t eternal, and you won’t be around forever to bail them out,” says King. “In the end, giving adult children the tools to help them move forward on their own may be the greatest help of all.”

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