Q.    Our daughter and her husband want to buy a home, but recently asked us to "Co-Sign" on the loan.  What are the consequences of this action?

A.     There´s nothing wrong with helping a family member, or close friend with buying a home.  However, co-signing on a loan should be done with great care and knowledge of the consequences.  Co-signing means that you are extending your personal credit for the benefit of someone else.  One of the many potential problems would be if the borrower defaults, the lender could look to you for full repayment.  You´re not really a co-signer... you´re a co-debtor.  Here are a few tips that may prove helpful when co-signing:

w     Although you´re co-signing, make sure the co-borrower is putting some cash into the transaction.  The more money of their own money they put into the deal, the lower your risk will likely be.

w     Obtain a credit report on the person you´re co-signing for... even if it's another family member.  If they´ve defaulted on other debts, there´s a good chance they´ll default on the debt you´re co-signing.

w     Arrange for the lender to fully release you from the loan when the principal balance is reduced to a certain amount.   

w     Consider how your credit rating and future ability to borrow will be impacted.  Co-signing on a loan can sometimes impact your ability to get financing if you need it at some point in the future.

w     You may want to have your name listed on the actual deed as a co-owner.  If you´re on the deed, and you make any cash contributions, and/or monthly payments... you may be able to deduct mortgage insurance, property taxes, and a pro-rata portion of any interest you may end up paying. Be sure to ask your trusted accountant and/or tax planner for qualified advice before signing any obligating documents 

w     When the home is sold, will you be sharing in any appreciation, or gain in value?  If so, put it in writing up front and make sure all parties sign the agreement.