Many parents feel the urge to help their adult children get into the property market. This might include cosigning a mortgage, but as Anne from Ann Arbor, Michigan, found out, doing so can create its own set of problems.
She called into “The Ramsey Show” and explained that she and her ex-husband helped their son snap up a condo in 2004. Now, 20 years later, he’s struggling to keep the home.
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“My son is unable to pay his mortgage,” Anne told host and personal finance expert Dave Ramsey.
Her situation is a clear example of what could happen when the ongoing trend of copurchasing property clashes with a high interest rate environment.
Lame situation
Anne says her son lost his job in April and hasn’t been able to make monthly mortgage payments since then. Instead, she and her ex-husband have been making the payments on his behalf. Now, she isn’t sure how long the situation can be sustained.
This isn’t the first time her son has struggled to make mortgage payments. Anne says she had to step in when a similar situation arose 10 years ago.
Her situation isn’t uncommon. About 53 million Americans live in co-owned homes, according to CoBuy, a platform for shared homeownership. Among cobuyers last year, 40% were family, which indicates many adults may be relying on their parents to get into the market.
Cosigning mortgages also seems to be in the cards for many parents. According to the Wall Street Journal, citing data from LendingTree, roughly 57% of parents are willing to cosign a mortgage for their children. Additionally, 78% of Gen Z and 54% of millennial homeowners told LendingTree they received some support for a down payment, primarily from their parents.
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Anne estimates the outstanding mortgage on the condo is $30,000.
“How long does it take to pay the condo note on $30,000?” Ramsey said. “This is about the laziest human I’ve run into.”
No easy solution
Ramsey suggested two solutions to Anne’s problem: a buyout or foreclosure.
“You need to get yourself out of this trap you’re in and the trap is cosigning,” Ramsey said.
Anne could potentially buy out her son’s portion of the equity in the home. After this, she can list the home for sale and get rid of the mortgage herself. This would be the easiest and best solution for her, Ramsey believes, but might be difficult for her son to swallow.
“That’s unbelievably aggravating and it’s not what’s best for him,” Ramsey said. “What’s best for him is to experience some pain.”
That pain is foreclosure, a process where the bank or lender takes possession of the property. The prospect of a lender seizing the condo could spur her son to action, but it also risks jeopardizing Anne’s pristine 820 credit score.
Either way, Ramsey firmly believes the current situation is untenable.
“You’ve got to stop it,” he said. “Put him out and let him figure out how to do life, and just love him from a distance that doesn’t include your checkbook.”
Ramsey put a stamp on it with a message to parents who want to help their adult children with financing.
“Moms and dads out there: never, ever, cosign,” he said. “It’s the ultimate enabling.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.