With property prices as high as they are many aspiring first home buyers are loosing faith in their ability to purchase their own home. As time passes and prices continue to rise the prospect of saving a sufficient deposit seems more and more hopeless. As a result, we are seeing an increase in family members, usually parents, going guarantor, which can significantly change the fortunes of first time home buyers by getting them into their own home much sooner than expected. Guarantor loans are well suited to people who are able to afford loan repayments but are unable to save the money for a deposit.
So what does going guarantor mean?
A person who goes guarantor (such as parents) can use equity in their property, rather than giving the borrower money towards their deposit and costs. This means that the lender withhold a mortgage over the guarantors property and the property being purchased.
What is required?
Going guarantor firstly requires the guarantor to have equity in their home. That equity can then be used as extra security against the aspiring house buyers loan. While the guarantor is not required to put in any money, they do become legally responsible if the person is unable to make their mortgage repayments. If this was to happen it is the responsibility of the guarantor to pay off the remainder of the loan if there is a shortfall after the sale of the borrowers property.
What are the Benefits?
- May be able to secure a home loan with a smaller or even no deposit
- Can get into the market much sooner
- Could avoid having to pay Lenders Mortgage Insurance (LMI) saving thousands of dollars
- In some instances, can consolidate minor debts, such as credit cards.
The guarantor may be able to specify the amount of the loan that they want to guarantee and each lender has different policies. Many lenders also require that the guarantor seeks independent legal advice before entering in on any contract.
A guarantor loan can be a great option for families if they are in a position to make it work. Who knows, for parents it might be a good opportunity to get the kids out of your hair when they have overstayed their welcome? so you can finally turn their room into a man cave or knitting room. For the kids it’s a great chance to gain independence and to get into the property market.
We advise that anyone considering this option seek professional guidance from a mortgage adviser, before making any decisions.
If you would like to discuss your individual circumstances and find out if you would be eligible for a guarantor loan, contact the Gain Financial team for an obligation free chat. Click Here to get in touch today.