Are you wanting to buy your first home but struggling to put together the deposit? If so, you may need a guarantor home loan to purchase a property.
In this article, I will be discussing everything you need to know about a family guarantor home loan.
What is a Guarantor?
A guarantor is a person who provides additional security for your home loan. Most lenders prefer the guarantor to be a close relative, such as a parent or siblings. Some lenders allow extended family members to be a guarantor for your loan; however, this varies depending on the lender.
Your guarantor will not have to provide any cash payment; instead, the guarantor agrees to offer part of their home equity to top up your cash deposit. This way, a family guarantor home loan can let first home buyers buy a place of their own.
From the bank’s point of view it will make you look less risky and therefor more likely to get approved.
How a Family Guarantor Home Loan Works
As a first home home buyer, saving up for a deposit and getting approved for a loan can be quite challenging.
A family guarantor home loan can be a way to help you buy a place of your own. You may only require a small deposit and in some cases, you may not need a deposit at all. Why? That’s because a guarantor typically a family member offers equity in their own home as additional security for your loan. For instance, the equity in your parent’s property may be used as security for 30% of the loan, while the property you are purchasing will be used as security for the other 70% of the loan.
- How much do they have to guarantee?
A parent will have to guarantee at least 20% of the purchase price of the new property if the borrower has no deposit. Once the loan amount owed is 80% or less of the property value of your property you can remove the guarantor from your home loan.
- What can you buy with a family guarantor home loan?
The family guarantor home loan can be used to buy a home or invest in a residential property. This is generally used for first home owners.
How to Qualify for a Family Guarantor Home Loan
To qualify for a family guarantor home loan, you need to have a family member who is willing to act as a guarantor. Moreover, the guarantor has to be a homeowner. Why? That’s because their home equity makes up part of the security for your first home loan.
There are several family guarantor home loan requirements that the lender will take into consideration. These include:
- The guarantor’s age
- If they have enough equity
- Whether their property is in Australia
- Whether they are presently employed
Agreeing to be a guarantor is a major decision. If you can’t keep up the repayments on your loan, the lender may ask your guarantor to pay off your home loan. Before applying for a family guarantor home loan, make sure to have an in-depth discussion with the person you want to act as your guarantor.
The Bottom Line
If you haven’t saved up enough deposit but do have the ability to make the necessary home loan repayments, a family guarantor may help you secure additional funds to buy a home.
Do you still have questions about family guarantor home loans? Allow me to help! With my expertise, I can help you secure the loan that you need to purchase your dream home.
Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here.
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