Using a guarantor for your home loan can reduce the amount of deposit you require and avoid paying Lender’s Mortgage Insurance on your home loan.
Using a guarantor (usually your parents, child or other relative) means that they provide additional security (i.e. a property they own) for your home loan. This can allow 100% of the purchase price plus fees (such as transfer stamp duty, settlement costs etc.) to be borrowed. With very few exceptions you will need to be able to service the entire debt yourselves; the guarantor’s income cannot also be used to service the loan. This is known as a ‘security guarantee’.
To utilise a security guarantee, the guarantor must have sufficient equity in a property for it to be possible. They may still have a home loan secured against the property but if there is still sufficient equity it can still be considered.
Naturally the guarantor must consent to providing the guarantee and independent legal and financial advice is always recommended. The guarantor can be liable for the entire loan amount should the borrower be unable to meet their obligations under the loan contracts and thus a very heavy emphasis is made by lenders to ensure guarantors are fully aware of the possible implications.
A guarantor can also be used for a construction loan – they are not only if purchasing an established property.
If you (or a prospective guarantor) would like to discuss this as a lending option, please feel free to contact us for more information.
Disclaimer: Loans are approved or declined on their merits by the specific lender and a loan approval is not guaranteed. We believe the information on this page to be correct. However we can give no warranty to this effect and expressly disclaim any liability for loss or damage by any person acting upon the information provided herein.