5 Ways A Guarantor Can Help You Buy A Home

June 6th, 2012 59 Comments
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Couple with a guarantor loanHome buying requirements are strict, and many people find that they are unable to qualify.

Even if you know that you can afford the monthly payments, it can be difficult to get a lender to see that. Fortunately, a guarantor can help you convince the mortgage companies to approve the loan, allowing you to move into your dream home.

1. Income Requirements

The top concern of most lenders is your ability to make your repayments. If your income levels don’t meet their expectations, then they will not approve your loan. However, if your parents are willing to sign on as guarantors, then the banks can consider their income.

They may have to use their property as security on the loan, and they will be held responsible if you default for any reason. Ideal for someone with lower income levels or higher debt levels, it can help you get the property you want.

2. Limited Guarantee for Easier Approval

There are times when the approval could go in either direction. When requirements are barely met or there are other concerns, the bank might want a little extra security before approving the loan. With a limited guarantee, the guarantor takes on partial responsibility for the loan.

They won’t be responsible for the full amount, but their willingness to take on part of it will boost your chances of approval. It is a great way to reduce the loan-to-value ratio or meet income requirements.

3. Service and Security

Some borrowers may have trouble meeting the requirements regarding income and deposit. When the banks are worried about you making monthly payments and there is a small deposit, the answer will probably be a resounding no. However, your guarantor can step up to the plate with a promise to help.

4. Affordable Payments

Lenders mortgage insurance, or LMI, can be a large up front payment. When you have a guarantor willing to use their property as security, you can avoid this expense. The home you love becomes more affordable when the bank does not have to charge that additional insurance.

With their assistance, the % of the value of the property (% loan to value ratio or LVR) you can borrow, may be higher. The finance company will be more comfortable providing the loan, and you can move into your dream home.

5. No Deposit Home Loans

The biggest challenge of buying a home is often saving the deposit. However, with a no deposit home loan, you don’t have to save thousands of dollars. With help from your family, you can get the property you want and finance the full purchase price.

When your parents agree to guarantee the loan, they are essentially using their own property to secure your new mortgage. With another property available to help cover the mortgage, most lenders are willing to waive deposit requirements. It is a common way for first home buyers to get the property they are interested in, and it is one of the ways a guarantor can help you get a loan.

Getting a guarantor makes it easier to buy the property you want. You can achieve your dream of home ownership without having to save up a large deposit, or pay for insurance.

Do you have a property in mind? If you are fortunate enough to have someone willing to sign as your guarantor, instead of going directly do your bank you should contact a mortgage broker. A broker with access to many banks and lenders has more chance of getting loans such as a no deposit home loan approved at competitive interest rates.


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