Get into your dream home sooner with the help of a Guarantor Loan
Guarantor Home Loans Made Simple
What is a Guarantor Home Loan?
A Guarantor Home Loan is when the loan applicant asks someone else to guarantee their loan by pledging their assets such as their property as collateral against the home loan. Basically the guarantor’s property is being mortgaged for the new home loan.
In most cases, applicants ask their parents to be guarantors for their home loan if their parents already own a property.
Why should I apply for a Guarantor Home Loan?
A Guarantor Home Loan is ideal if you are able to prove that you can repay a loan, but you haven’t saved enough deposit for your loan. This is ideal for younger people who have well-paying jobs but are having difficulty saving up to buy their first home.
Some lenders will even allow you to borrow up to 105% with a Guarantor Home Loan if both you and your guarantor meet specific criteria, which means that you could get a home loan without a deposit!
You can also avoid paying LMI (Lenders Mortgage Insurance) with a Guarantor Loan, potentially saving you thousands that could go towards paying off your mortgage.
Keep in mind though while the guarantor is not responsible for your mortgage repayments, your lender will contact them in the event that you are unable to pay back your loan.
How do Guarantor Home Loans work?
Suppose you want to buy a property worth $800,000 and your partner and you have saved up $100,000 to use as a deposit
Here your deposit amount is less than 20% of the total property value, which means that most lenders will require you to purchase LMI. The only way to avoid paying LMI, is to save an additional $60,000, which would bring your deposit to up to 20% of the property value, i.e. an LVR (Loan to Value Ratio) of 80%.
One option is to pay LMI which can be costly, and purchase your dream home. The other option is to wait until you have saved enough, during which time the property may not be available.
Now suppose your parents have a property worth $600,000. If they are willing to use 10% equity in their property as a guarantee for your home loan, then your LVR comes down to 80% which means you can avoid paying LMI.
This way you can buy your dream home sooner and cheaper with the help of your parents.
Who can be a Guarantor for my home loan?
Most lenders will allow your family members such as spouses or immediate family members such as siblings, or parents to serve as a guarantor for your mortgage.
It is also possible for other family members such as uncles, aunts, or grandparents, and sometimes even ex-spouses to be a guarantor.
Some factors that are considered when reviewing guarantors include but are not limited to:
- Their relationship to the home loan applicant
- How much equity they have in their property
- The location of their property
- Their financial situation
Note: It is recommended that potential guarantors seek independent legal advice to ensure that they completely understand their obligations under the guarantor agreement.
Can I get a more detailed assessment?
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