Should you co-sign for your kids?

If you’re a parent of a young adult whose home ownership dreams have been dashed, there is a way to help. In June, the maximum amortization period for insured mortgages was reduced from 30 to 25 years, making it even more difficult to manage monthly payments. But having a parent co-sign on the dotted line allows adult children with lower salaries to get into the housing market. It’s a trend that mortgage broker Scott Dawson expects to increase in response to the new rules. But is it a good idea?

Before you put your John Hancock on that mortgage form, make sure you truly understand your child’s financial situation. “There’s a power dynamic that exists when a parent is heavily involved with a child’s financial life,” say Karin Mizgala, CEO of Money Coaches Canada. “It’s only advisable if you truly trust your child and know for certain that he or she is responsible with money.”

If the child doesn’t pay the bills the relationship can be ruined, since the parent is on the hook, Mizgala warns. Parents also have to be in good financial shape themselves: if Mom or Dad has too many debts or bad credit, the lender will deny the loan, which could be embarrassing. Instead, Mizgala advises both parents and kids to be patient and wait until the child is able to qualify on his or her own. “To qualify for a mortgage,” she says, “someone should be able to stand on their own two feet.”