A guarantor is a third party to a home loan, supporting you to get a loan by offering additional security support. A guarantor is usually an immediate family member, such as a parent, sibling or grandparents.
What is a guarantor?
A guarantor on a loan is someone who offers assistance to obtain a home loan when they are unable to provide adequate deposit. The guarantor allows a portion of equity in their property to be used as additional security for the borrower’s loan application and provides less risk to the potential lender.
Benefits of a guarantor
- Deposit - If you have the ability to service the loan but don’t have enough deposit, a guarantor could help you secure additional funds to buy a home; meaning you can borrow up to 100% of the purchase price and possibly the extra fees, such as solicitor fees, stamp duty etc.
- LMI – You can avoid paying Lenders Mortgage Insurance (LMI). LMI is usually required when you are borrowing more than 80% of the purchase price.
- Equity - After you have built up equity in your property, you can remove your guarantor from the loan. The timeframe to achieve this varies depending on the original deposit, the number of extra repayments made and whether your property has appreciated in value.
First home buyers are utilising a family member as a guarantor on their home loan due to the rising costs of living and the forever increase in rent is finding it difficult to save a deposit. A deposit for a home is at minimum 5% of the purchase price plus additional costs or 20% to avoid Lenders Mortgage Insurance.
Each lender is different and their structure and policies may vary, make sure you seek expert advice so you can get the right loan to suit your situation and also suit the guarantor. Guarantors should always seek independent legal and financial advice to ensure the agreement they are entering into is fully understood.
Mortgage Choice in Bundall can review your circumstances and see if a family member is eligible to guarantee your home purchase.
Call today to arrange an appointment on 07 5504 5569 or email firstname.lastname@example.org
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