October 10, 2014
It's becoming increasingly difficult for many first home buyers to save the required deposit to purchase their first home.
If you or someone you know is in this situation, the good news is that some lenders on our panel offer a solution which may be suitable, it's called a Family Guarantee or Family Pledge home loan.
What is a Family Guarantee?
A Family Guarantee is where a family member (usually a parent or other immediate family member) provides their property to be used as security for the new home loan.
This property will be used to take a limited guarantee of 20% (plus costs) of the new purchase price, with the remaining 80% secured by the purchased property.
Let's look at a Family Guarantee example
- Purchase price $500,000
- Purchase costs: $25,000 (5% estimate)
- Home loan required: $525,000
- Guarantor's property secures 20% of the purchase price ($100,000) plus the purchase costs ($25,000) = $125,000
- Purchased property secures the remaining 80% of the purchase price = $400,000
Benefits of Family Guarantee
- Provides in some instances the borrower with the ability to borrow up to 100% of the purchase price plus the associated costs
- Save thousands of dollars by avoiding paying Lenders Mortgage Insurance (LMI).
- Entry to the property market earlier
A couple of other important points
Once the borrower has built up equity in their property, the guarantor can request their property to be released from the loan. This is dependant on borrowers home loan balance being equal or less than 80% of their property's value and may take a number of years.
Also if the borrower cannot payback their loan according to the loan contract, the lender may take legal action against the borrower and in some instances the guarantor. It is for this reason that guarantors are required to seek independant legal and financial advice before taking on this role.
For further information on Family Guarantees, please call me today on 07 5538 6005 or click on the 'contact us' tab at the top of this page.