Guarantor Home Loans Explained
Saving for a deposit on a house can take a long time. Particularly if you are paying rent at the same time. To make things even harder, house prices can go up significantly while you’re busy saving. Meaning not only will it take longer, but you also miss out on that capital growth.
A guarantor loan could mean that you are in your home sooner and potentially save you thousands of dollars in expensive Lenders Mortgage Insurance (LMI).
If you have a family member who is willing to help (i.e. a parent), and that person has equity in property, then they may be able to offer what’s called a ‘security guarantee’. This type of guarantee allows you to borrow a small amount of money secured against their property to help pay for your deposit and purchase costs.
Put simply, you borrow 100% of the purchase price (plus purchase costs). Of which 80% is secured by your new property and the other 20% (plus purchase costs) is secured against your family members property. Your family member is guarantor for the smaller loan only (not the full amount).
And because your total lending is under 80% of the value of the two homes combined, you don’t pay Lenders Mortgage Insurance (saving you thousands).
The example below demonstrates a possible guarantor structure for the purchase of a $400,000 property intended to be your principle place of residence. Purchase costs are estimated to be $20,000 (Stamp Duty, Government Fees, Solicitor Fees & Loan Fees).
Not all lenders offer loans with a security guarantee. It is important to shop around to find the right options for both you and your guarantors. There are a lot of things to consider before making an application for finance.
If you would like further information about how a guarantor could help you into your new home sooner, or would like to arrange an appointment, please do not hesitate to get in touch. We’d love to speak with you.