These days, it can be difficult for first-time homebuyers to save a 20% down payment in order to buy a house. If you feel priced out of the market and are thinking about alternative options to fund your home purchase, it might help to know that there is actually an option to rely on a third party to provide the 20%. The option is called a “guarantor” loan. If you want to learn more about this, read on as we break down everything you need to know about guarantor home loans.
When you’re saving for a deposit on your first home, putting together a down payment is tough —but there are ways to speed up the process. With a guarantor home loan, you may only need a small deposit, or you may not need a deposit at all—like making a down payment with your own property. That’s because a guarantor—usually a family member—offers some of their equity as additional security for your loan. A guarantor home loan can also help you avoid lender mortgage insurance (LMI). It’s an expense that can be avoided with some of them, which is worth thousands of dollars.
Guarantor loans are designed to help those with only a small deposit or no deposit at all. A guarantor is a third party to a home loan and must be either a parent or other family member willing to use some of the equity in their own property to secure a home loan for another person, typically a close family member.
If you don’t have the 20% down payment that some lenders require, then trying to save the money can be extremely difficult. However, by having a cosigner, you may be able to borrow the full purchase price and sometimes even costs associated with purchasing property. This varies across lenders — some will still insist that you contribute some of your own money, even if you have a cosigner.
A guarantor can save you thousands of dollars by avoiding Lenders Mortgage Insurance (LMI). LMI is generally required for home loans where you have less than 20% of the purchase price in your deposit. (This means that the loan is greater than 80% of the value of a property.) LMI is a type of insurance that lenders take out to cover themselves against the risk of defaults on high LVR loans.
Once you’ve accumulated enough equity in your property, you can ask your guarantor to be released from your loan. The time it takes for this to happen varies depending on the original deposit, how many extra repayments you’ve made, and whether your property has increased in value over time. Depending on the lender, you may need to pay some fees in order to get your guarantor out of the loan. For example, the lender might ask you to fork over a revaluation fee for the primary security property as well as a fee for the lender to release the guarantor.
In order to have a guarantor on your loan, you will need a family member to be your guarantor. This person will also need to be a homeowner. Their home equity is what makes up the security for the first loan, but they can also be asked to take responsibility if you stop paying back your own debt. Anyone considering being a guarantor for a home loan should seek independent legal and financial advice before committing to the role.
We hope this article proves to be useful when it comes to helping you understand what guarantor loans are and how they can help you. As you can see, guarantor loans can be quite useful given the right situation. Be sure to keep everything you’ve learned here in mind the next time you’re considering your options when buying a home.
If you’re in need of a guarantor home loan, then you’ve come to the right place. Founded in 2013, we have built a powerful team with a real focus on delivering outstanding customer service and carefully considered, strategic home loan advice. We have the knowledge and expertise to find the right home loan for your unique needs. We’re so much more than just low rates, and it is our absolute passion to help you maximise opportunity and grow your wealth. For more information on what we can do for you, visit our website today!