Need a Helping Hand Into Your First Home? How About a Guarantor Home Loan?
Being able to save deposit for a home loan has become increasingly difficult in recent years due to the ever rising price of property. Property prices have dramatically increased in Sydney and Melbourne over the past several years. This makes purchasing a property more difficult than ever. It is hard or a first time buyer to purchase a property and get their foot on the property ladder. The savings required to make a purchase continue to grow and is the biggest hurdle. You may have the income required to comfortably afford your mortgage repayments, but paying rent and building your savings can be a struggle. Maybe obtaining the assistance of a guarantor may be just what you need. Here we take a look at a guarantor home loan and how they work.
How does it work?
Ideally, lenders like you to cover your purchase costs and have a 20% deposit. As a minimum you will require the purchase costs and a minimum of 5% of the purchase price. Purchasing with only a 5% deposit will greatly increase your fees due to LMI. The reality is that saving 20% deposit for most first home buyers is pretty tough to do. This is where a guarantor home loan might be an option for you.
The guarantor (who will need to be an immediate family member) uses their property as additional security for your loan. The primary security for the loan will be your property, supported by a mortgage over your guarantor’s property. They are using the equity they hold in their property to provide additional security to your lender.
The guarantee is to assist in security only. You must still be able to service the loan based on your own income, without having to rely on the guarantor. If you can’t afford to service the loan just on your own income, then the lender will not approve the loan.
Are there risks involved in being a guarantor?
Yes, guarantors are liable for your loan. If you default on your loan, your guarantor will become responsible for paying off your mortgage. They have provided security for your loan. Their property, as well as yours, becomes part of any lender recovery action taken if you don’t make your repayments. In basic terms, the lender can re-posses both yours and the guarantors properties if you default on your loan.
You and the guarantor will be asked to obtain independent legal advice to ensure you are both fully aware of the ramifications of having / being a guarantor.
Is it right for me?
Some lenders are willing to lend with only a 5% deposit (95% of your property’s purchase price), but the loan features and interest rates they offer may not be as good as if you have 20% deposit or a guarantor home loan.
If you want to take advantage of current historically low interest you may not want to wait until you have a huge deposit saved.
If you’re considering asking your parent to become your guarantor, or you’re a parent considering becoming the guarantor on your child’s home loan, speak to us so we can provide you information.
The Home Loan Comparison Co. compares home loans from a much wider variety of banks than most people have time to consider, and we find the loan that suits your goals.
We are experienced, knowledgeable and dedicated to building ongoing relationships to keep on providing personal and valuable service that is rarely experienced when dealing with the banks.