Struggling to save enough to buy a property? You may want to ask your family if they can provide a helping hand in the form of a family guarantee loan. This is when the equity in a family member’s home is used as security on your loan.
Also known as a family pledge or guarantor home loan, it is a type of mortgage that allows you to borrow more money and provide less of a deposit. Usually when a loan is more than 80% of the purchase price (80% LVR) you will have to pay lenders mortgage insurance, but a family guarantee means you won’t have this extra expense.
It’s even possible to avoid paying any deposit because the equity in your family’s home can act as a deposit. This ‘guarantee’ makes it possible for you to borrow the full 100% cost of the home, plus stamp duty and legal fees. Lenders mortgage insurance will still be payable if you borrow over 80% of a property’s value.
There are many issues to consider when taking out family guarantees and it pays to keep in mind that loan terms and conditions can vary between lenders. Not all lenders even offer these type of loans, so give us a call and we can advise you which lenders would best suit your situation.
Here are some of the common questions we get asked about guarantor home loans. For more detailed information about any of the following, don’t hesitate to get in contact.
Does the entire loan have to be guaranteed?
No, the loan can be split, enabling the equity in your family’s property to be used as security for a small portion of the loan, for example 20%. The lender will take a mortgage out over the guarantor’s property to this specified amount.
Who can act as guarantors?
Guarantors are usually parents, but some lenders under certain conditions will accept grandparents, siblings, a de facto partner or a former spouse. To be approved by a lender they must provide enough equity to cover the amount being guaranteed and in most cases do not need to show proof of income. Normal lending criteria will apply in all circumstances.
What are the risks of a guarantor home loan?
There are risks involved, which is why it is important for the guarantor to know what they are getting into. Some lenders even require legal advice is sought to ensure the guarantor understands that if there is a default on repayments, they will be the ones held liable.
How long does the guarantee have to be in place?
If the guarantor home loan is structured correctly, the guarantee doesn’t need to be in place for the entire duration of the loan. Once you have repaid the portion of the loan that is guaranteed or your property has increased in value, the guarantor can be released.