My parents are in debt and want to take a loan out in my name. Should I let them?

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My parents are in their early fifties and have taken on some serious debt from their investments. They were originally pretty comfortable and in fair financial shape, but they lost a lot of money from WaMu and their stock investments. They then decided that the way to get out of it was to invest their remaining money and get loans from the bank to invest in all the foreclosed and cheap real estate available because of the mortgage crisis. Their plan was to buy these properties and rent them out to people, but the people they rent out to don’t have good credit and keep not paying rent for months at a time or running out on them all together. They’ve pretty much gotten to the point where the bank refuses to loan them any more money, and they’ve acquired about 4 or 5 of these rental houses. They’re also carrying high-interest credit card debt.

They’ve now come to me asking if I will basically take out a loan from the bank to “buy” one of these properties from them. They’d basically use the money I would get from this loan to pay off some of their high-interest credit card debt, and transfer the title of the house to my name. They would take responsibility for paying back the loan every month. They say that it would be beneficial to me because it would be adding to my credit history while I wouldn’t have to do anything, basically, except allow them to use my name to get a loan.

I don’t know what to do. I’m very wary about this because I’m about a year out of college, have never bought property or taken out a loan on anything before, and I make about 47,000 a year in a big city and am single without children. I wouldn’t be using the house that they’d transfer to my name, since I don’t live near them. I think they’d continue to try to rent it out.

I feel obligated to let them do this because my mom did spend probably tens of thousands of dollars on me up until I graduated college and we are family. However, I don’t want to potentially ruin my credit before I’ve even had the chance to use to any large degree yet. II might want to buy a house or condo in the next couple of years and I’m wondering if this will affect my ability to do so, if I already have a house or loan out under my name.

Also, they’ve made some really risky and bad decisions about money in the past, so I don’t want them to pull me down too if they can’t make the loan payments or make other bad decisions.

Also, if I let them use me to do this, I would feel like I should have a say in their future financial doings, which they might ignore or resent. I don’t want them to keep buying properties or investing in things they can’t afford, and I don’t want them to keep lending to people with bad credit.

Please give me some thoughtful advice about what to do! I’m just a kid out of college with my first real job, and I have no idea about getting loans from banks and my savings total to less than $ 5,000. I’d appreciate any help!

8 Comments
  1. Reply
    David Z
    May 19, 2011 at 12:45 am

    no no no. do not let them ruin your credit.

    most parents would not even ask to do this. this puts you in a bad and awkward situation. be firm and tell them no.

  2. Reply
    Bob G
    May 19, 2011 at 12:55 am

    IF and only IF you can afford it you could consider taking out a loan to help your parents. But it should only be if you can afford to lose every dime of it when they default. If you cannot afford the payments then it would be a major mistake to even think about it due to their history.

    Maybe they need to get with one of those companies that help with debt management? Or even consider a reverse mortgage on their home? I don’t think you should take the risk though.

  3. Reply
    Proud Mother
    May 19, 2011 at 1:23 am

    I do not recommend it. Here’s the thing, if you bail them out this time, they will then expect you to do the same again. It is no wise to put the words family and money into the same sentence. If they need a few extra groceries and you can afford it, then get them some groceries. If they need some gas in their vehicles, then fill em’ up if you can afford it. It is not your place to pull them out of debt. The last thing you need is to go down with this economy. They could consider debt relief for credit cards.Do not loan money to them, you will regret it in the end. Hope this helps and hope you have a good day.

  4. Reply
    DG
    May 19, 2011 at 2:23 am

    There is no way you should risk your credit for your parents. Credit is an essential part of modern life and your credit bureau will dictate how much you pay for things like mortgages, car loans and maybe whether or not you get a job. It is not fair for your parents to ask you to do this and you should not allow them to use your credit.

  5. Reply
    jlf
    May 19, 2011 at 3:23 am

    Do NOT do this. Your parents got themselves into this and they have to take responsiblity for their own finances.

  6. Reply
    patrick
    May 19, 2011 at 4:11 am

    Well, the good news is you probably will not qualify for a loan in this case.
    You are applying for a non occupied mortgage. Thes emortgages are much harder to get, and carry a higher interest rate. The bank will also be suspicious of the terms of the sale, as it is within the family. Finally, these types of mortgages generally require a minimum of 20% down payment, and you do not have the funds to do that.
    Explain to your parents that you would like to help, however, it appears there is no way you are going to qualify for a mortgage on the property with your funds available and income.

  7. Reply
    Ryan
    May 19, 2011 at 4:40 am

    Instead of a loan, give them some money every month to put towards the debt. That way you are in control of the dollar amount, and you can stop whenever you need to. There won’t be any credit impact on you, the parents keep their home, and you still keep you first time home buyers benefits. They can pay you back in a few years once their investments turn around.

  8. Reply
    Lauren F
    May 19, 2011 at 4:51 am

    If your plan is to buy a house in the next five years, you cannot “buy” a house for or from them on paper. No bank will give you a loan for two mortgages. And, unless one of these foreclosure houses is one that you want to live in, it is pretty unlikely that a bank would approve a loan for you alone anyway, as you don’t have enough income (on paper) to both pay for your own rent and call this house a rental business. Plus the tax consequences are way too difficult with everything they are trying to do here. They would lose the tax deductions for the interest and taxes, because you are paying those, at least on paper, and wouldn’t be able to deduct them because it is not your rental business.

    Instead, I would advise mom and dad to try to get a balance transfer card and transfer the high interest rate debt to a lower rate card. I like the pentagon federal credit union VISA which offers a 2.99% balance transfer.

    Sorry – I know you feel obligated to help, but doing so will only postpone the inevitable for them, and you will be throwing your own hard earned money away.

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