Q: My 38-year old daughter has owned and operated her own day care facility for two years.The business is doing well and providing a good living for her family. Her husband works also, but I don’t think he contributes much to their living expenses.
They recently moved into an old house on the same property as the day care, renovated it and will be living there indefinitely. She has the opportunity to buy the house, the building that houses her business, and one acre of land on a major highway in Arkansas for $118,000.
I think the property is worth the asking price, so there isn’t a problem with that.
However, my daughter has a bad credit history, although she has really taken charge of her finances during the last few years. She needs me to co-sign or secure the loan for this purchase. I need some professional advice on how we should handle this transaction to protect both of us.
The bank is working with us on getting the application started. Can you tell me how we should do this?
A: If you’re going to help out your daughter, and you want to be protected, you and she should have some sort of agreement that spells out your financial arrangement.
It could be that you and she purchase 50 percent of the property, rather than you simply lending her your good credit score. That way, your signature is backed up by some ownership of the property.
If you do co-sign the loan, whether or not you have some ownership of the property, you have to recognize the danger to your own financial situation. While your daughter appears to have turned around her life, she may have another spell of bad luck. If you co-sign her loan and she starts missing payments, the lender will come after you. Whether or not you can afford them won’t be the issue. Your credit will also be tied to your daughters, so you could wind up even bigger problems.
If you feel like your daughter is ready for this, and can financially manage her affairs, co-signing the loan might be less risky for you. But you should make sure you understand the financials of her business so that you know whether or not this property is too big a leap at this time.
Finally, if she can’t afford it, but you think it’s a good investment, you could always purchase the property on your own and rent it to her until she is financially strong enough to purchase it down the line.
You need to sit down with a real estate attorney and possibly your tax preparer to make sure you’re thoroughly protected just in case.
Q: My daughter was engaged to be married a year ago. She and her fiance got a first time home buyer loan that provided them with a low interest rate if they both signed the agreement.
About two months before the wedding, she postponed it and eventually cancelled it. A month later she moved out and got her own apartment. Three months ago, she and her fiance called it quits.
What can she do now to get her name off the note? She doesn’t want any thing from the property and hasn’t contributed to any of the payments.
A: Unfortunately, until your daughter’s ex-fiance decides to refinance the mortgage (which he probably can’t do without her income), she is on the hook for not just 50 percent of the payment, but the whole thing.
If her name is still on the deed, don’t remove it. That’s her leverage to eventually get her ex to refinance the loan. If he does stop paying the mortgage, she, as an owner of the property, can force the sale so that her ex doesn’t completely ruin her credit.
For more information, talk to your tax preparer or real estate attorney.
Jan. 19, 2009.