Are you in the market for your first home but concerned you have insufficient savings to fund this purchase?
Some lenders allow first home buyers to enter the property market with a finance option called a guarantor home loan. These loans work when a parent or family member is willing to offer up their home for part of or all of your mortgage. .
A guarantor loan works to assist you with purchasing a home without a deposit or savings. This is because the guarantor will agree to offer equity in their own home as your means of a cash deposit. As a home owner, you'll be the main person responsible for making regular payments to the mortgage, but if you fail to meet these payments, the person who agrees to go guarantor will become liable for the repayments.
Who can be a guarantor?
Each bank will have different eligibility requirements of who this can be when you buy property. Though, generally the following will apply:
a stable income
aged 18 to 65
have a good credit file
the property of the guarantor is in Australia
generally 80% equity in their home, or they own the home outright
What are the risks for guarantors?
There are several risks that you should consider if you're thinking to enter an agreement for a guarantor home loan. Here are a few:
If you can't repay your home loan, your guarantor will be responsible for it
It could stop your guarantor from being able to access a loan
Can jeopardize their credit score
It can impact relationships
What are the benefits?
When you're in the market to buy your first home, there are a few benefits that guarantor loans can provide. One of these include getting into the market faster as you don't need to put down a deposit. In most cases, depending on the lender, you're required to put down up to 20% for a deposit when you buy property. However, with guarantor home loans you don't need to save for a deposit.
An additional benefit of guarantor loans is that you avoid paying Lenders Mortgage Insurance (LMI). This is an insurance that you typically have to pay the banks when you purchase a house and your deposit is less than 20%. In the instance of guarantor loans, you don't need to pay this.
To see how a guarantor loan works, check out this video that we created:
If you want to learn more about what finance options are available to you as a first home buyer, our team of finance specialists are able to assist you! At REIF, we are able to assess your financial situation to determine lenders that will be able to offer you the best deal on a home loan. For a FREE no-obligation consultation with a finance specialist, please reach out on the details provided below.
Ph: 1300 130 932
Email: clientservices@reif.com.au
