Guarantor Home Loan
A guarantor home loan is one where a homebuyer’s family member offers their own property as security on a loan.
It is one of the ways to borrow between 100% and 110% of a property’s purchase price. Essentially, 80% is the secured portion of the loan against the property value. The remaining balance of the loan not covered by the property value is the guarantee amount.
This arrangement can help the borrower secure a mortgage, often with better terms, by providing additional security to the lender.
How a Guarantor Home Loan Works
Your guarantor will provide a guarantee for your home loan, which is secured on their property. In most cases, this is your parents assisting you in buying a home.
The idea is for you to get into the property market sooner. Once you have paid off part of your loan or your property has increased in value, then you can apply to remove the guarantee.
Guarantor loans have become very popular in recent years. As they cost less than standard home loans, they allow you to buy without a deposit and some lenders now allow you to limit the size of the guarantee.
- Role of the Guarantor: The guarantor, usually a parent or close relative, agrees to use their own property as additional security for the borrower’s home loan. This reduces the lender’s risk and can help the borrower qualify for the loan.
- Limited or Full Guarantee: The guarantor can provide either a limited guarantee, covering a portion of the loan (often the deposit), or a full guarantee, covering the entire loan amount.
- Equity Requirement: The guarantor must have sufficient equity in their own property to provide the guarantee.
Benefits for the Borrower
- Lower Deposit Requirements: Borrowers can often obtain a home loan with a smaller deposit, sometimes as low as 5% of the property value.
- Avoiding Lenders Mortgage Insurance (LMI): With a guarantor, borrowers may avoid the cost of LMI, which is typically required when borrowing more than 80% of the property’s value.
- Improved Loan Terms: Guarantors can help borrowers secure more favorable loan terms, such as lower interest rates or higher borrowing limits.
Risks for the Guarantor
- Financial Liability: If the borrower defaults on the loan, the guarantor is responsible for covering the outstanding amount, up to the limit of their guarantee.
- Impact on Credit: The guarantor’s credit rating may be affected if the borrower defaults and they are unable to cover the loan.
- Potential for Property Loss: In extreme cases, the guarantor may lose their property if they are unable to meet the obligations of the guarantee.
Conditions and Requirements
- Assessment: Lenders will assess the guarantor’s financial situation, including their income, assets, and existing debts, to ensure they can fulfill the guarantee if necessary.
- Legal and Financial Advice: Guarantors are often required to seek independent legal and financial advice before entering into the agreement to ensure they understand the risks and obligations involved.
- Release of Guarantee: The guarantor can be released from the guarantee once the borrower has repaid a sufficient portion of the loan or has enough equity in the property, usually when the loan-to-value ratio (LVR) drops below 80%.
Applying for a guarantor loan with us is a straightforward process designed to help you secure the financing you need with added confidence. Whether you’re looking to buy your first home or consolidate debt, a guarantor loan can be a great option, especially if you’re concerned about your credit history. With our extensive network of lenders, we can find a loan that suits your financial situation, even if you have limited deposit or past credit issues. Our team of experienced brokers will guide you through every step, ensuring both you and your guarantor understand the terms and benefits. We handle all the paperwork, making the process as smooth and stress-free as possible, so you can focus on achieving your financial goals. Apply today and take the next step toward securing your future with a trusted partner by your side.
