Using a co-signer to secure a loan

[Michael J Quill]

Hi Gang,

First time posting here, but I’ve been listening to the Bigger Pockets Podcast for a while now, and I’m part of a family owned rental property business.

Here’s my “dilemma” that I’m hoping to get some feedback on:

I’m looking to branch out from my family’s portfolio and purchase my first owner occupied 3-4 family property in Boston, and while I have ample money in the bank for the 20-25% down payment, I’m self employed and have not made enough consistent income in the past 2 years to secure a 30 year fixed mortgage.

My lady friend, who has a very solid 9-5, has offered to co-sign on the property in order for me to get approved for the loan. She insists that she does not want any kind of financial stake in the property whatsoever, and wouldn’t even want any kind of one time payment for co-signing. She just wants to help me out.

So, what do you all think about this arrangement? I do not want to in any way use this person, or feel obligated to stay in the relationship long term just because she helped me out with the co-sign. For my own conscience, I feel like I need to make this deal into more of a “partnership,” so that she has something financially to gain in this endeavor. That said, I want to own this property by myself, and do not want to be splitting profits for the next 30 years with someone else.

What kind of risk does she take in the event I totally blow the deal and for some reason can’t make the monthly mortgage payments? And what risks do I take, if any, in having her co-sign?

Another route that I’ve explored is getting a commercial loan, which in theory would not require a co-signer, because the bank looks less at your personal income, and more at your ability to pay the down payment and the property’s ability to cash flow. That said, I’m not thrilled about the higher interest rates and not being able to lock into a 30 year fixed rate.

Any feedback, advice or links to good forum threads on this topic would be greatly appreciated!

Thanks,

Mike