Using a co-borrower on a Mortgage
I am looking at purchasing a 3 family. I will live in it and rent out the other 2 units. With the current tenants, my mortgage and insurance would be more or less paid, and the units are not even at market value. However, despite excellent credit, the mortgage folks have told me that I’m…
I am looking at purchasing a 3 family. I will live in it and rent out the other 2 units. With the current tenants, my mortgage and insurance would be more or less paid, and the units are not even at market value. However, despite excellent credit, the mortgage folks have told me that I’m a little short on gross income, given the the sales price and debt to income ratio. I have an extremely close childhood friend who could/would sign on as a “co-borrower” so that I could make the income minimum. If my friend is neither going to live there or pay costs, what are the implications for her, tax-wise etc. She will put no money down. (I realize if I default or die she is liable) I’m just trying to get a general idea about the nuances of this. If anyone has had any experience with this, please share! Thank you.
This is actually pretty common. Of course your friend will be liable for payment of mortgage. Im not sure how much your yearly income is but if you are saying that the rental income more or less pays your housing expenses then you shouldnt have to be reporting too much income. Unless you have lots of other monthly obligations. How high was your debt service ratio? Also, you may have good credit but you better make sure your friend has good credit as well. Banks go off the lower of the two. And does she own a property herself? That may cause problems. What is your expected down payment? sunny_hong@countrywide.com
Not just if you default/die/etc. Your friend’s credit profile will now show a mortgage… this may potentially have a large effect on her credit score — of course, this all depends on the 10,000 semi-secret ways a credit score is determined (and the 10,000 other semi-secret ways a credit report is read by a creditor)
Not trying to dissuade you or your friend (cuz I’m not sure how else one would buy an “income property” without being pre-enriched), but it’s just something to think about.
there is no impact on them tax wise as you will be reporting all of the income and taking all of the deductions. More significant would be the impact on your friend’s credit score as the mortgage will be part of their credit profile. If you are late or default – they will be screwed credit wise.