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this post was submitted on 16 Jan 2024
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A friend was looking at getting a home lately and I offered to look into co-signing with them, so we gave our information to see what they would qualify for. With both of our details, they offered them a home loan of something like $100k, really not even enough to get anything that's on the market now except for the worst crack houses possible. I then looked at what would be possible if I just applied by myself and if I applied for a home loan for a place that I would rent out. Not sure if it was considered a business loan, but I wouldn't be the occupant, it would be an investment property for me. Suddenly, by myself, I qualified for a $300k loan, same loan agency, just different terms. I do have great credit, so maybe that helped, it's just weird how they come up with the numbers sometimes. Like you would think two people together would qualify for more than what a single person would qualify for.
What happened is that the other person apparently has absolutely terrible credit, so holy hell don't cosign with him!
I mean, operated as an investment property they have near certainty you will have a stable income source (the tenant) so it makes sense that the loan value is higher. You're guaranteed to have the income of the rent checks and just as likely all your other potential income on top of that. You actually can afford higher mortgage payments in that situation -- and substantially so.
Which is a strong, strong, strong argument why all cities which have housing shortages (basically all cities) should be exercising policies that discourage non-owner-occupied properties.
It's a risk assessment. A low score as a primary borrower is more risky, even with a secondary borrower, the hassle to get paid if the first defaults isn't worth it. Investment vs primary residence is also a different risk profile, you can assume some level of income from an investment property.
Don't cosign anything for a friend, ever. It will screw up your friendship.
What's to prevent someone from buying a house this way and then just "renting it" from themselves? lol
You're not renting it from yourself. You happen to be renting from a corporation that you happen to be sole director of. Gotta emulate what the rich do.
If you buy a house declared as investment, but you really intended to live there, it's mortgage fraud.
Generally, mortgages for your primary residence offer more favorable terms then ones for investment properties. The issue in the above story is likely related to the friend. If they had tried the same thing, their offer would likely have been even worse than what they got for a primary residence with a cosigner. Assuming they got an offer at all.