Implications of Co-Signing Loan

Q: I have a high debt-to-income ratio, but a very good credit score. However, my debt-to-income ratio means I can’t buy a house without paying a very high interest rate.
 

To make it easier and less expensive for me, my boyfriend is thinking of co-signing a loan for the property without being included on the title to the property. He may also possibly, minimally, financially help me out. But I will be paying for the down payment, tax and the majority of the mortgage myself.

I want to know if he can claim any ownership to my condo in the future. I also want to know what would happen if I refinance later on without him. Is there a law that would require me to pay him back for any contributions he made to me or to the property?

I would like to know what you think are the risks for him and for me in this deal. Thank you so much. I love reading your articles. You clear out so much confusion in the world of real estate.

A: Let’s see if I understand the situation: Your boyfriend is offering to co-sign your loan but not be included on title to the property. He may also help you out financially.

Sounds like a great deal – for you. I'm wondering what's in it for him.

If your boyfriend wants to tie up his credit with yours out of the goodness of his heart, just so you can qualify for a lower interest rate, he might be a keeper. In that case, if you marry, the home you buy now will still be yours but you may want to add his name later to the title.

But let's assume your relationship isn't going to work out, for whatever reason. As long as you pay the mortgage, taxes and insurance, and keep your credit history clean and credit score high, there won't be any negative repercussions to your boyfriend down the line.

Except that when he goes to get financing for a home, the lender will see that he's already committed to your loan. And he may be rejected since his debt-to-income ratio might be out of whack.

At which point, he'll come back and ask you to refinance your loan and take him off. And, he'd be right to make that request.

That's his risk. As for you, there's very little risk that he can demand payment down the line for lending you his signature today. Unless you sign a partnership agreement that states he gets a certain percentage of the profits when you sell, you won't owe him a dime.

But taking money from someone without offering him or her some sort of return on their investment seems wrong somehow. Only you and he know what kind of relationship you have, and you'll have to figure out what you want to do if things don't turn out for the best.

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