Family Guarantor Loans

Unlock Your Property Dreams with a Guarantor Home Loan

Are you struggling to save for a home deposit? You’re not alone—many aspiring homeowners find it challenging to accumulate a sufficient deposit, especially when renting. Fortunately, a Family Guarantor Loan could be your solution, allowing you to achieve your property goals sooner.

With a Guarantor Home Loan, you may be able to borrow up to 105% of your property’s purchase price, giving you access to homeownership without the lengthy wait.

What is a Guarantor Home Loan?

A Guarantor Home Loan allows a family member—such as a parent, sibling, spouse, or even an extended family member—to assist you in purchasing either an investment or owner-occupied property by providing additional security. This family member is known as a Guarantor.

The Guarantor offers the equity in their property as additional security for your loan. While this can expedite your home-buying journey, both the borrower and the Guarantor must fully understand the associated risks, as the Guarantor’s assets may be at stake if repayments are not met.

Benefits of a Guarantor Home Loan

By having a Guarantor, you may benefit from:

• Increased Borrowing Capacity: Access to a larger loan amount, allowing you to purchase a property sooner.
• Lower Interest Rates: With added security, you may qualify for more competitive interest rates.
• Avoid Lenders Mortgage Insurance (LMI): Potentially bypass the need for LMI, saving you significant costs.

How Long Does a Guarantor Stay on a Mortgage?

A Guarantor will typically remain on your mortgage until one of the following occurs:

• The loan is refinanced.
• The loan is fully paid off.
• Sufficient equity has been built in the property, demonstrating a history of on-time repayments.

Keep in mind that some lenders may charge fees for the release of a Guarantor.

Example of How a Guarantor Home Loan Works

Let’s say you wish to purchase a property valued at $700,000. Most lenders require a deposit of at least 20% ($140,000) to avoid LMI. If you’ve saved $50,000, you could ask your parents to provide $90,000 of their home equity as additional security. This arrangement gives you the 20% deposit needed, allowing you to purchase the property today without incurring LMI costs.

Guarantor Loan Requirements

To qualify as a Loan Guarantor, the individual must:

• Be a family member of the borrower.
• Have a strong credit rating and a steady income.
• Be over 18 (usually under 65).
• Own a home in Australia with sufficient usable equity.

Limited Guarantee Options

Some lenders offer the option of a limited guarantee, meaning the Guarantor only needs to secure part of the loan rather than the full amount. This reduces the Guarantor’s risk and liability.

Implications for the Guarantor

If the borrower fails to repay the loan, the lender can take legal action against both parties. The Guarantor will be liable for the amount specified in the guarantee. Therefore, it’s crucial for anyone considering this role to seek independent legal and financial advice before proceeding. Most lenders will require this consultation prior to accepting a guarantee.

Multiple Guarantors

It’s also possible to have multiple Guarantors for a home loan, providing additional security for the lender. However, specific requirements and terms for multiple Guarantors may vary based on the lender and the circumstances of the loan.

Partner with Nextstep Home Loans

At Nextstep Home Loans, we specialise in navigating the complexities of Family Guarantor Loans. Our team of experts will work closely with you and your Guarantor to ensure a smooth and informed process, enabling you to achieve your homeownership dreams without unnecessary delays.