Are you planning on refinancing a home mortgage? Thanks to new banking regulations, you'll soon discover that refinancing a home is tougher than ever. My husband and I are in the middle of refinancing one of our rental properties. Even though we have great credit, a great retirement account, and money in savings, we jeopardized our refinance by being account cosigner on our two sons' checking accounts.
Both our sons are in the military and serving overseas. They each have USAA bank accounts through the military but kept their old checking accounts 'back home' as a way for us to send money back and forth, pay their bills, deposit their refund checks, and so on. So that I would have access to their accounts for paying their miscellaneous stateside bills, they both added me as a cosigner.
What does it mean to be a cosigner?
Being a cosigner on any contract whether it's for a loan, a rental, or even a checking account means that you will accept any liabilities that arise. If the other person defaults on the loan or moves out halfway through a lease, for example, a cosigner will agree to take over the payments. A person who is cosigner on a checking account is on the hook for bounced checks, overdraft protection, or a negative balance.
Because I was a cosigner on two checking accounts, my sons overdraft protection (even at a zero balance) counted again me as a risk. Fortunately, the increased risk was slightly offset by the money in their checking accounts which counted as a cash reserve.
In the days before the housing crash, explaining the purpose of joint checking accounts such as these was something that could be done face-to-face with a lender. Since the crash, underwriters are requesting that everything be documented and signed by all parties involved. In our situation, the underwriters wanted signed letters from both my sons stating that I had 100% access to their accounts. If either of my sons had been in active combat or unavailable, the refinance would have been delayed until they could have been reached.
Tighter regulations means that consumers like us have to be prepared for piles of paperwork, signed statements, and letters of explanation that will be required before a refinance can be processed. And, if you are a cosigner on your adult child's joint account like I am, you might consider removing yourself from the account if possible and figuring out a different way to manage bill paying for your child who is temporarily working out of the country.
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- Personal Checking & Savings
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