Don't cosign a mortgage for your kids, says Dave Ramsey

Adult kids need to struggle, explains Ramsey

Anne says her son lost his job in April 2023 and hasn’t been able to make monthly mortgage payments since then. Instead, she and her ex-husband have been making the payments on his behalf. Now, she isn’t sure how long the situation can be sustained.

This isn’t the first time her son has struggled to make mortgage payments. Anne says she had to step in when a similar situation arose 10 years ago.

Her situation isn’t uncommon. About 6% of Canadian homeowners co-own their property with another party, not including their spouse or significant other, according to a Royal LePage study released in August 2023. Of this group, 89% co-own with family members, which indicates many adults may be relying on their parents to get into the market.

Cosigning mortgages also seems to be in the cards for many parents, for whom co-ownership seems to be increasingly common and expected. According to a recent report from Statistics Canada in 2021, 17.3% of residential properties owned by people born in the 1990s were co-owned with their parents.

Anne estimates the outstanding mortgage on the condo is USD$30,000.

“How long does it take to pay the condo note on $30,000?” Ramsey said. “This is about the laziest human I've run into.”

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Parents have options just don't co-sign the mortgage

Ramsey suggested two solutions to Anne's problem: a buyout or foreclosure.

“You need to get yourself out of this trap you’re in and the trap is cosigning,” Ramsey said.

Anne could potentially buy out her son’s portion of the equity in the home. After this, she can list the home for sale and get rid of the mortgage herself. This would be the easiest and best solution for her, Ramsey believes, but might be difficult for her son to swallow.

“That’s unbelievably aggravating and it’s not what’s best for him,” Ramsey said. “What’s best for him is to experience some pain.”

That pain is foreclosure, a process where the bank or lender takes possession of the property. The prospect of a lender seizing the condo could spur her son to action, but it also risks jeopardizing Anne’s pristine 820 credit score.

Either way, Ramsey firmly believes the current situation is untenable.

"You've got to stop it," he said. "Put him out and let him figure out how to do life, and just love him from a distance that doesn't include your cheque book."

Ramsey put a stamp on it with a message to parents who want to help their adult children with financing.

"Moms and dads out there: never, ever, cosign," he said. "It's the ultimate enabling."

— with files from Leslie Kennedy

Sources

1. Royal Le Page: Canadians buying homes with family, friends to combat housing affordability woes (August 2023)

2. Statistics Canada: Intergenerational housing outcomes in Canada (May 2024)