Imagine finally stepping through the door of your own home, a space you can truly call yours. For many, the biggest hurdle to achieving this dream isn’t finding the right house – it’s saving enough for a deposit.
Using a guarantor is a solution many potential home buyers utilise to help them achieve ownership sooner!
What is a Home Loan Guarantor?
A guarantor on a mortgage is a family member (typically a parent or sibling) who uses the equity in their own property as additional security for your loan.
Why Consider a Guarantor?
Opting for a guarantor home loan can be a game-changer, particularly for first-time buyers.
This arrangement can significantly lower the entry barriers to purchasing a home, often reducing, or in some cases, even eliminating the need for a traditional deposit.
A guarantor can also be used in a way to avoid the cost of Lenders Mortgage Insurance (LMI), which could save you thousands of dollars when purchasing a home with a deposit that is smaller than 20% of the value of the property.
Understanding How a Guarantor Home Loan Can Help
Let’s say you’re a first home buyer and you have found the perfect house that is listed at $700,000. You have been saving up and have managed to put together $70,000, which covers 10% of the asking price.
Normally, if you’re borrowing more than 80% of a property’s value, you would have to pay lenders mortgage insurance (LMI), adding a significant cost.
In this example, a 20% deposit would require $140,000 deposit.
This is where having a guarantor can be a game changer. The guarantor can offer $70,000 of their own home’s equity, to help secure your loan.
In this arrangement, your guarantor doesn’t have to pay anything monthly. They’re essentially your financial backup. If times get tough and you can’t make the mortgage payments, the lender will turn to your guarantor to cover the shortfall.
Requirements for Becoming a Guarantor
If you’re considering a guarantor home loan, an essential first step is finding a family member who is prepared to serve as your guarantor.
This person must own property, as their home equity plays a crucial part in securing your mortgage. Home equity, put simply, is the current market value of their property minus any outstanding mortgage amounts they owe.
Choosing to become a guarantor is a significant commitment.
Therefore, it is essential for potential guarantors to thoroughly understand what this role entails. Seeking independent legal and financial advice is required by lenders before they approve such an arrangement.
We Are Here To Help
Obtaining a guarantor can make the dream of homeownership accessible sooner than you might think. However, it’s vital to fully understand the implications for both the borrower and the guarantor.
Get in touch with our experienced team of brokers today so we can help you navigate the complexities and secure the financing needed to achieve your homeownership goals.
Call us on 02 6162 2740 or email us at enquiries@dominionfinance.com.au to make an appointment today.
