Home Buying in Louisville>Question Details

Naynay, Home Buyer in Louisville, KY

Can a seller co-sign for the buyer to enable the buyer to purchase the seller's home?

Asked by Naynay, Louisville, KY Mon Jan 24, 2011

If the seller has had the property for sale for a while-and unable to sell-could the seller co-sign on the loan to enable the potentiel buyer to have a better chance at getting the loan?

Help the community by answering this question:


There has to be an elimate of deceit for fraud to take place. FHA loans are assumable. The seller recognizes they are still responsible for the loan unless the buyer has been approved on their own merit. It isn't quite co-signing but may accomplish the same thing.

Unless this home is headed to foreclosure anyway (without being currently delinquent), I cannot imagine the upside to the seller would out-weigh the risks involved.

Good Luck!
Mark Atteberry, SG Priest Realtors
Personal Service, Expert Results
0 votes Thank Flag Link Sat Feb 19, 2011
Sounds like a good possibility of mortgage fraud.
0 votes Thank Flag Link Mon Jan 31, 2011
Why would the seller want to do that ? Then it obligates seller still to that property.

Confer with your mortgage broker

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes Thank Flag Link Tue Jan 25, 2011
The seller can not co-sign on a loan that is going to be sold on the secondary market, FHA, VA, FNMA or Freddie Mac. The exception to that rule might be if the seller is also a close relative. In that case the arms length rule would limit the loan to value to 85%. However, they can co-sign on portfolio loans if the bank that lends the money allows it. Most sellers will not be able to do this if they are going to buy or have bought another home. This debt would count in their ratios even though they may not be on title. I do not know about other states but in Kentucky you are not required to take title in order to co-sign a loan.

Contract for deeds have their own risk if the seller has an existing loan on the property. Most mortgages have a due on sale clause (paragraph 17 or 18?) that allows the lender to call the loan due if the title is messed with. That would be if the contract for deed is recorded. If the contract for deed is not recorded the buyer is more at risk, if it is recorded the underlying mortgage might be called due and payable, hurting both buyer and seller. Lease options may be a route, but both lease options and contracts for deed rely on the seller making payments on the underlying loan if there is one. Both of these methods would have much less risk if the seller owns the property free and clear.

Underwriting guidelines are actually fairly liberal, OUCH, did he really say that? Yup, and they haven’t really changed all that much since the 1950’s, credit reports were even graded back then. The truly safe route for a buyer is to take an honest look at the issue that is holding them back and address it head on. ANY attempt to circumvent the problem adds to the borrower’s risk. Acquiring debt is not a prize; it is a tool to help reach the prize. The best question is: how soon do you want to be debt free? Let me know if I can help you develop a plan with less risk.
0 votes Thank Flag Link Tue Jan 25, 2011
Among all of the changes that have taken place in mortgage lending over the last few years, there is a minimum credit score requirement for the occupant buyer. An ongoing relationship must exist between the occumpant buyer and the non-occupant co-borrower. That generally means a family member. With FHA, which is the preferable program for co-signing, if a home is sold to a family member, the minimum down payment would go to 15% of the purchase price (or appraised value, whichever is lees). The bigger question is the arms-length transaction. Owner financing of some sort is going to be the preferable solution.
0 votes Thank Flag Link Tue Jan 25, 2011
Why would a seller want to do this? He or she would basically be taking all the risks and have absolutely no recourse to the buyer if the buyer defaults.

It's possible to play with snakes and not get bit, but I always recommend not to play with snakes.
0 votes Thank Flag Link Tue Jan 25, 2011
Co-signing by a non-occupant buyer doesn't necessarily qualify a buyer who can't qualify on their own. The occupant buyer has to have sufficient income, credit and reserves to qualify for a mortgage. When someone co-signs on a loan, they are co-buyers and would be on the title along with you.
If they own the home outright, or have substantial equity, they possibly could provide owner financing.
The other option would be to set up a lease purchase option, where the buyer rents the home, having purchased the option to buy the home at a later date for a predetermined price. This would allow you time to improve your credit and give the seller some income and a potential sale.
0 votes Thank Flag Link Mon Jan 24, 2011
The best way to handle this situation would be for the owner occupant to go with the contract for deed option, legal jargon for owner will finance the buyer. Lenders see this many times and I believe that as long as both parties financial condition are satisfactory, things should work out. I would talk with both a real estate attorney and your lender before you get disappointed. A short sale changes the issue entirely.
0 votes Thank Flag Link Mon Jan 24, 2011
You would have difficulty finding a lender. The reason being, this would be a non-arms-length transaction. Non-Arms-Length is when a third party has something to personally gain from the transaction, as in this case, the seller. .... Happy funding, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Mon Jan 24, 2011
Why doesn't he sell it to you owner financing? If it is a short sale, it wouldn't be allowed since it wouldn't be an arms length transaction
0 votes Thank Flag Link Mon Jan 24, 2011
If you were owner occupant of the property why not sell the house contract for deed? (Which basically means owner financing.)
0 votes Thank Flag Link Mon Jan 24, 2011
This is creative but, I wouldn't advise it. It would constitute an arms-length type dealing and I would think any investor would frown upon it. Also, the seller no matter how desperate he is to sell would be foolish to co-sign for someone he may not know very well and in the end still get stuck with the property/debt he was trying to get away from to begin with.

Sandy Farmer
Realtor, GRI, CSSN
John Hall & Associates
0 votes Thank Flag Link Mon Jan 24, 2011
As far as I know there is nothing saying that can't happen!
0 votes Thank Flag Link Mon Jan 24, 2011

Basically, anyone can co-sign. And that would be a nice selling point for the seller. The downside, of course, is that if the buyer defaults, the lender can come after the previous owner. In addition, co-signing probably will have a negative impact on the seller's credit score, as does any additional debt or liability for debt.

Hope that helps.
0 votes Thank Flag Link Mon Jan 24, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
Unless it is a short sale, sure, you could do it. Check with the buyers loan officer to be sure, but out here, you could do it.
0 votes Thank Flag Link Mon Jan 24, 2011
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