My aunt and uncle are ready to co-sign a mortgage for us. What do you think of this idea?

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Dear Dave,

My fiancee and I want to make an offer for a house. However, she has a lot of late payments and a bad credit history, but she works hard to manage her money better and get out of debt. I’m not making enough money to get a mortgage on my own, and I have debt to pay off as well. In order to help us, my aunt and uncle said they were ready to co-sign a mortgage for us. What do you think of this idea?

Evan

Dear Eva,

Here’s a simple, solid tip for anyone looking to make a purchase of any kind. If you need a co-signer, you’re not ready to make that purchase, period. I’m not trying to fight you or anything, but it’s way too early for you to think about buying a house. I mean, for starters, you’re just engaged right now.

When a lender needs a co-signer, it basically means they don’t believe you will repay the money. Plus, you don’t need a home now or right after you get married. The two of you should get married and live in a decent, cheap apartment for a while. During this time, you both have to work hard to pay off all of your debts. After that, save an emergency fund of three to six months of spending. Then start putting money aside for a down payment on a modest house.

When it comes time to buy a home, I recommend a 15-year fixed rate loan with at least 10% down. Twenty percent is better, as it will save you from paying PMI (private mortgage insurance). Make sure the monthly loan payments do not exceed 25% of your combined take home pay. Keeping payments at 25% or less will make it easier to solve other important financial issues, like saving and investing.

Your aunt and uncle are obviously generous people, Evan, but they are a little misguided in their offer. At this point, helping you buy a house – something you obviously can’t afford – would be a huge burden instead of a blessing.

—David


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