Guarantors Made Simple.

A guarantor is a related third party that provides additional security to help a family member buy their own home. They are different to a co-applicant because they are not included in the loan, but rather linked to the loan by a guarantee. This is achieved by the guarantor allowing equity in their own property to be used as additional security for the borrower’s loan. The primary security for the loan will be the borrower’s property. However, the lender will also take a mortgage over the guarantor’s property. This will not support the loan directly but will be used to support a guarantee.

You may be wondering who can be made a guarantor. Generally guarantors are limited to immediate family but depending on the lender, some will allow extended family, and even ex-spouses.

There are a variety of reasons how a guarantor can support your loan application. In many circumstances guarantors will support buyers secure additional funds to purchase a home, who have insufficient deposit but can make the repayments for their loan.

Saving for a deposit can be difficult to do if you are also renting. It can be an extremely daunting aspect when it comes to purchasing a property. By having a guarantor, the borrower may be able to borrow the full purchase price and sometimes even the cost associated with the property purchase. This varies across lenders.

Another benefit of having a guarantor is that the borrower has the chance to save thousands by avoiding Lenders Mortgage Insurance (LMI) which is a type of insurance lenders take out to cover additional risks of high loan to value ratio. The amount of the guarantee will depend on the policy of the lender.

After the borrower has built enough equity in their property, the guarantor can be released from the loan.

The only implication for the borrower and in particular the guarantor is in the circumstance that the borrower is unable to pay back the loan according to the terms of the contract. The lender may take legal action and in some circumstances, the guarantor will be liable for the amount specified in the guarantee.

If a guarantor is looking to borrow, their ability to borrow may also be reduced due to their role as guarantor.

To better understand guarantors, contact us today on 66847096

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