Saving a decent home deposit can be difficult … especially if you’re renting. But there is a solution that could get you over the line sooner - having a guarantor.
A guarantor is usually immediate family - a parent or a family member - who offers their own home as extra security for your loan. They are not required to make any payments on your loan, but if you can no longer keep up your repayments, the lender will turn to the guarantor to make the repayments.
What are the benefits of having a family member go guarantor?
The big plus for you as a home buyer is the additional security your guarantor provides, which means you may be able to secure a home loan with a smaller deposit – or even no deposit at all.
It can also mean avoiding Lenders Mortgage Insurance (LMI) – a saving that can run into thousands of dollars.
The lender will still check you can comfortably manage the loan repayments but having a guarantor can fast-track you into a place of your own.
Each lender works differently, but in many cases your guarantor can nominate how much of your loan they’re prepared to guarantee, and how long they wish to act as guarantor for.
Whatever the case, anyone agreeing to act as a guarantor should seek independent legal advice. Some lenders insist on this, because when your guarantor signs the contract, they could become legally responsible for paying back the entire loan if the original borrower can’t keep up your repayments. Sure, this is a worst case scenario, but by becoming your guarantor, they can impact your ability to secure a loan of their own – even if there are no problems with the loan they are guaranteeing.
There’s a lot to weigh up, and it’s definitely worth speaking with the home loan experts at Mortgage Choice in Joondalup about using a guarantor. We understand the different requirements of each lender when it comes to having a guarantor, and this helps you cut through the clutter to find the loan that’s right for your needs.
And, our trusted Mortgage Choice Financial Adviser can help your guarantor check this is the right move for them, and make sure they have the insurances in place to protect themselves should the unexpected happen.