September 15, 2014
As a mortgage broker, I see more and more clients struggling to enter the property market due to the lack of a deposit. “How can we save a deposit when we are paying monthly rent?” is a common question.
Thanks to an option called ‘family guarantee’ or ‘security support’ borrowers can now borrow up to 100% of the purchase price of their new property, plus borrow for associated costs such as stamp duty and mortgage registration.
How does it work?
Most lenders require a minimum 5% deposit from a borrower looking to purchase a home. As a rule, this deposit must be saved or held in an account for a minimum of 3 months and must be at least 5% of the purchase price. This savings rule shows the lender that you have the ability to manage your money and is commonly referred to as ‘genuine savings.’
However, with the increased cost of living and many clients having to pay rent/board while saving for their dream home, saving a deposit is becoming increasingly difficult. This is when family guarantees can be a great option.
This type of lending requires the consent from a family member (or in some circumstances, a friend) to allow the borrower the use of their property as additional ‘bricks and mortar’ support for the new home loan.
The lender will take a limited guarantee of 20% (plus associated costs) of the new property purchase price and has that loan secured against the guarantee’s home or investment property. The remaining 80% of the property purchase is then secured against the new purchase. In summary, the lender is securing 100% of the loan over 2 individual properties.
As the borrower, you are wholly responsible for the entire loan, with only 20% being guaranteed by way of the guarantor’s property.
Purchase price $400,000
Associated costs $20,000 (approx.)
Guarantors property will secure 20% of the purchase price plus costs = $100,000
Borrowers property being purchased will secure the remaining 80% of the purchase price = $320,000
Besides the ability to borrowing 100% of the purchase price, family guarantee loans can also save the borrower thousands of dollars in Mortgage Insurance fees. As the new purchase is only securing 80% of the loan amount, Lenders Mortgage Insurance (LMI) is not required. You can find out more about LMI here.
If you believe a family guarantee is the right option for you, please call Ashley on 0425 826 967 or 9432-2121 for more information.