Young couples applying for a mortgage may reach an impasse if their credit isn't up to par. Mortgage underwriters may approve your mortgage application if you add a co-signer into the mix. As a couple starting out, you want to choose a co-signer with financial experience and decent income such as a parent. If your parents live in a different state, you might find it more difficult to get an approval. An approval for an out-of-state co-signer depends on the lender you use.
The Federal Housing Administration backs loans issued by traditional lenders. FHA loans typically offer lower interest rates and easier approval criteria. To qualify as a co-signer under FHA policy, your parent must maintain a principal residence in the United States. The only exceptions to this rule are military personnel serving overseas and U.S. citizens living abroad.
Each lender creates its own policies regarding co-signers and approval. Some lenders allow out-of-state co-signers while others shun this practice. In the event the lender must sue you and your parent for payment, the lender must sue your parent in his state of residence to achieve legal satisfaction. Many lenders choose to deny out-of-state lenders to eliminate this technicality. Contact your potential lender to determine the co-signer residency requirements.
You may ask the lender to make an exception if your parent is willing to sign a waiver allowing legal action to be pursued against him in your state of residence. You may also ask a different relative who lives within your state of residence. Another alternative includes asking your parent to supply money for a higher down payment in hopes that you may qualify for the mortgage loan without a co-signer.
There are disadvantages to having a parent co-sign for your mortgage. Missing even a single payment could adversely affect your parent's credit history. This added strain could impact your relationship should you miss a payment. Many young couples would like to keep their financial information private. As long as your parent is listed as co-signer, you mortgage payment history reports on his credit report.
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