With the increased property prices and costs of living it’s becoming harder for people to save a deposit while still trying to enjoy life. These are the main reasons why Guarantor Loans are more common.
A Guarantor Loan or Family Guarantee is where typically an immediate family member provides additional security support to purchase a home and is generally taken as a second mortgage behind the Guarantor’s current lender. The main features of this type of loan are:
- It allows the borrower to have a reduced deposit and in some cases no deposit is required
- The borrower can finance up to 105% of the purchase property
- Due to the additional security support there is no lenders mortgage insurance payable and can save tens of thousands of dollars
Who can be a Guarantor?
Typically a guarantor is restricted to being a parent however some lenders will allow grandparents, siblings, other family members or even friends in some cases. The main thing that needs to be proven is a strong relationship between the guarantor and borrower.
How do I know if a family member can be a Guarantor?
Again this depends on the chosen lender’s policy, as some lenders will only take a guarantee behind an investment property and not their principal place of residence, and other lenders will.
The main thing to consider is if there is sufficient equity in the proposed property to take a guarantee. This means for example, if their property is worth $500k then 80% of this is $400k (the maximum amount that can be borrowed from the property without mortgage insurance) and they have a debt and limit of $300k then this means they have a $100k of equity that they can use as a security guarantee.
Are there any other specific things to consider about a Guarantor loan?
There are many aspect of the Guarantor Loan that need to be considered by the borrower and guarantor and usually are best discussed in person, however one main part of being a guarantor is they are required to obtain legal and/or financial advice about providing a security guarantee. This is to make sure that they are aware of the responsibilities and potential risks of being a guarantor.
How do they work?
If you were purchasing a property for $500k, 80% of the property value being $400k will be secured solely against the property being purchased, than the remaining $100k + fees will be secured against the purchase property and the guarantors property. This guarantee is limited to the guarantee amount and is all that the guarantors are exposed to.
If this seems like an option for you, please contact me on 0437 498 800 and we can go through the requirements and process with both the borrowers and guarantors.