Family Guarantees

What is a Family Guarantee?

A Family Guarantee is a great way that can help you purchase your home when you do not have enough savings for the deposit.

The Family Guarantee is generally given by direct family members of the borrower/s (Parents, Siblings etc..). 

The Guarantee is generally limited to the deposit amount required to make up to 20% of the purchase price to avoid Lenders mortgage insurance. (Refer to Blog on Lenders Mortgage Insurance)

Example: (Basic excluding costs)

Purchase Price: $500 000

Family Guarantee $100 000 (20%)

Total debt to Security 80% (No LMI)

Total loan $500 000

 

You can also include fees such as stamp duty and settlement costs.

 

Example: (Basic excluding costs)

Purchase Price: $500 000

Costs: $20,000

Family Guarantee $104 000 (20%)

Total debt to Security 80% (No LMI)

Total loan $520000

 

 

The Guarantor is giving a portion (limited) of their own home to be used as security for the purchase. (Note: No extra funds are borrowed in the Guarantors name.)

 

The Good stuff

This means that a borrower can purchase their home without having to save up the full deposit and get into the property market earlier

 

The Bad stuff

If the borrower defaults on their loan the Guarantor may need to pay amounts owing and/or can be made to sell their home to cover any shortfall in funds from the sale of the property upto the limit of the family Guarantee.

Posted in: First home buyers

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