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Buying a home is increasingly expensive. Even at today's extremely low rates, you may not qualify for a mortgage unless you can get someone (a friend or a relative) to cosign for a loan. This concept can also be used in renting an apartment, buying a car, or getting your first credit card. Cosigning a loan means that you are guaranteeing the debt of the borrower. So, if you are going to get a cosigner, make sure you can pay for the loan. Otherwise, your friend or a family member who cosigned for the loan will be responsible for your debt.

Most people don't realize that cosigning for a loan makes them entirely responsible for paying off the debt if the borrower can't. If you cosign for a home purchase, your name will go on the title as an owner of the property. Your credit report will also list the mortgage as a debt, and if the borrower gets into financial trouble, the lender could and come after everything you own. So think twice before YOU cosign a loan for a friend or a relative.

What is seller financing?

Seller financing is when a seller helps to finance a real estate transaction by taking back a mortgage. It is usually in the form of a 2nd mortgage and is used in conjunction with a standard 1st mortgage. For example when you need 20% to put down on a house and you only have 10%. The seller can finance the remaining 10%. If you are lucky, seller may even finance the entire purchase if the seller owns the home free and clear. By using seller financing to bring you over the 20% down payment level, you save money by not being required to purchase PMI.

Seller financing differs from a traditional loan because the seller does not give the buyer cash to complete the purchase, as does a lender. Instead, it involves extending a credit against the purchase price of the home while the buyer executes a promissory note and trust deed in the seller's favor. These special circumstances must be acceptable to the lender who makes the first mortgage on the property. Some lenders do not allow additional down payment dollars to come from family or other lenders.

The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller. It's a great way to get a mortgage without a lengthy qualifying process, little or no fees, and possibly lower APR than traditional mortgages.

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People are living longer than ever before, a phenomenon undoubtedly made necessary by the 30-year mortgage. -- Doug Larson

Real Estate: Risks of cosigning for a loan

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