Family Guarantee: Avoiding Lenders Insurance

April 19th, 2011 21 Comments
Posted by

When you know you have enough income to pay mortgage payments each month, but you simply don’t have enough money saved up to make a good deposit, this can be an extremely frustrating situation to deal with. You might be able to get approved for a mortgage with little or no down payment, but you’ll be forcing yourself to pay for unnecessary costs like lender’s insurance, and possibly a higher interest rate.
Thankfully, avoiding lenders insurance is possible even if you don’t have a deposit saved up. If you have family with equity in a home of their own, or real estate that they are financially responsible for, you might not need to make a deposit at all. This is possible through something called a family guarantee.

Why Banks Require Lender’s Insurance

Before we discuss how a family guarantee can help you avoid lenders insurance, allow us to discuss why it exists in the first place. When a bank decides how to approach a borrower, they perform a complex calculation based on rules that determine how much of a risk you are to them.

As such, a bank has to plan ahead to deal with these risks. If you were to take out a home loan, only to find yourself in a situation where you could no longer pay it off, the bank finds itself in a precarious situation. They home now belongs to them, but it is of no value to them unless they sell it.

Banks are not home salesman, and they are not able to sell the home at its maximum value. In many cases, the bank is forced to sell the home for a loss. This is why they ask for a deposit in the first place. The deposit protects the bank from these losses.

But the bank does not feel protected from those losses if the deposit is too small. They have to find that protection elsewhere, so they hire an insurer. These lender’s insurance companies will cover the losses to the bank if you are no longer able to make your mortgage payments.

Of course, the bank has no reason to pay for the cost of lenders insurance themselves. If that were the only option, they would only lend out to people who could offer a large enough deposit. The banks don’t see it that way, however. They can simply ask the borrower to pay for the lenders insurance, and most borrowers who haven’t saved up a deposit are happy to do so, because they would rather not wait any longer.

How a Family Guarantee Resolves the Issue

With a family guarantee, the risks faced by the bank can be alleviated without making a large deposit and without paying for lender’s insurance. Through this process, the family member agrees to act as a guarantor. They are usually a parent, but they could also be a sibling or a grandparent. They then choose how much of the loan they will secure.

In most cases, the figure chosen is close to 20%. This is because 20% is the size of a deposit necessary in order to avoid lender’s insurance. While no deposit is needed in this case, the family guarantee serves the same purpose to the bank. Essentially, the family member is agreeing that they will be held liable for this amount of the loan if you fail to make your payments on time. They need to back up this claim using equity in a home of their own, or an investment property.

Assessing guarantor credit history is an important part of this process. Not only will the borrower be required to submit documentation. The guarantor will need to do so as well. They will also need to prove that they are financially and legally independent of you.

Benefits of a Family Guarantee

The most obvious benefit is that the borrower is not required to make a down payment in order to avoid or reduce the costs of lender’s insurance. This means that you will be able to buy a home sooner than you would otherwise be able to. You will be able to borrow for the full value of the home without any concerns, including the extra expenses (which usually amount to about 5% of the value of the home).

There are benefits to the guarantor as well. Not only are they able to help their family member buy a home, they can do so with very little risk to themselves. The situation is entirely different from cosigning a loan, which means that the family member could be held liable for the value of the entire home. They are only liable for the value that they have explicitly stated they are willing to secure.

Releasing the guarantee is also possible within a relatively short period of time. If the family member chose to secure 20% of the value of the home, for example, they could be released from the guarantee once 20% of the value of the home had been paid off. They could even be released if the value of the home increased by 20%.

To learn more about family guarantees, visit our website.


  1. Vrnxws says:

    alternative to antihistamine for allergy otc allergy medication comparison chart alternatives to allergy medication

  2. Cxlmnx says:

    exact allergy pills list of otc allergy medications antihistamine generic names

  3. Lvmqfe says:

    anti nausea prescription medication list oral irbesartan 150mg

  4. Uhvthj says:

    generic isotretinoin 20mg brand isotretinoin order accutane 40mg without prescription

  5. Qtzuxb says:

    medication options for heartburn order tritace online cheap

  6. Zujunc says:

    buy sleeping tablets online usa buy meloset 3 mg generic

  7. Tcbtei says:

    omnacortil price buy prednisolone 10mg sale prednisolone 20mg cheap

  8. Pgjiqs says:

    omnacortil 20mg uk cost omnacortil 5mg prednisolone oral

  9. Mqwpvm says:

    semaglutide 14 mg drug rybelsus 14mg sale semaglutide 14 mg price

  10. Xwsrsh says:

    isotretinoin 20mg drug isotretinoin online order isotretinoin 40mg ca

  11. Cfnryu says:

    buy albuterol pill get allergy pills online albuterol without prescription

  12. Dnatvd says:

    prednisolone 40mg sale buy prednisolone 20mg generic cheap prednisolone tablets

  13. Mhnzgr says:

    where can i buy prednisolone prednisolone online omnacortil 10mg over the counter

  14. Gktghe says:

    buy clomid 100mg generic clomiphene sale clomiphene usa

  15. Fkcram says:

    buy furosemide online lasix 40mg over the counter generic furosemide

  16. Smbwfd says:

    furosemide drug order furosemide 40mg online cheap where to buy lasix without a prescription

  17. Xvajmi says:

    semaglutide 14mg uk rybelsus 14mg uk order semaglutide sale

Leave a Reply