Allow a Friend to Qualify With Your Account?
2 August 2004, Revised November 16, 2006
“A family friend wants to buy his first house and has asked me to help by adding his name to my bank account. His broker told him this will help secure a better loan and will pose no risk to me. I would like to help my friend, who I trust to be responsible, but I am less sure of the broker. What would you counsel?”
I wouldn’t do this for my closest buddy, because it would place our friendship at risk, and require me to participate in a fraud. I would either gift him the money he needs, or counsel him to wait until he can save it himself.
The broker is mistaken when he says that placing your friend’s name on your account poses no risk to you. Even though you are certain he is not going to run off with your money, your friendship will be at risk.
One of the problems with our mortgage system is that no borrower can be exactly sure what the final tab will be until closing, unpleasant surprises are very common. This is one reason the lender wants to see that your friend has some extra money available. You need to consider, therefore, what would happen if the transaction goes down to the wire and it turns out that he needs, say, another $1500 to close.
There are three possibilities. One is that you say “no” and the deal fall through. In this event, your friend will blame you (with good reason) for allowing the deal to proceed as far as it did. The chances are good that he will end your friendship.
A second possibility is that you say “yes” under duress, in which case you will feel justifiably exploited. This could strain your friendship, or even end it.
The third possibility is that you say “no” but your friend goes ahead and uses your money to close anyway. In this event, you will feel betrayed and certainly end the friendship.
Even if you accept the possibility that your money might have to be used, and can agree with your friend on a repayment arrangement, I think it is a bad idea. Your friend would be committing a fraud against the lender by claiming to have funds that he does not in fact have, and you would be aiding and abetting that fraud. I don’t think that is something we should do for a friend.
“A family friend wants to buy his first house and has asked me to help by adding his name to my bank account. His broker told him this will help secure a better loan and will pose no risk to me. I would like to help my friend, who I trust to be responsible, but I am less sure of the broker. What would you counsel?”
I wouldn’t do this for my closest buddy, because it would place our friendship at risk, and require me to participate in a fraud. I would either gift him the money he needs, or counsel him to wait until he can save it himself.
The broker is mistaken when he says that placing your friend’s name on your account poses no risk to you. Even though you are certain he is not going to run off with your money, your friendship will be at risk.
One of the problems with our mortgage system is that no borrower can be exactly sure what the final tab will be until closing, unpleasant surprises are very common. This is one reason the lender wants to see that your friend has some extra money available. You need to consider, therefore, what would happen if the transaction goes down to the wire and it turns out that he needs, say, another $1500 to close.
There are three possibilities. One is that you say “no” and the deal fall through. In this event, your friend will blame you (with good reason) for allowing the deal to proceed as far as it did. The chances are good that he will end your friendship.
A second possibility is that you say “yes” under duress, in which case you will feel justifiably exploited. This could strain your friendship, or even end it.
The third possibility is that you say “no” but your friend goes ahead and uses your money to close anyway. In this event, you will feel betrayed and certainly end the friendship.
Even if you accept the possibility that your money might have to be used, and can agree with your friend on a repayment arrangement, I think it is a bad idea. Your friend would be committing a fraud against the lender by claiming to have funds that he does not in fact have, and you would be aiding and abetting that fraud. I don’t think that is something we should do for a friend.