Get on the Property Ladder with a Guarantor Loan
When it comes to purchasing your first home, saving a deposit can be challenging and time–consuming. However, a guarantor home loan offers an alternative route to get into the property market more quickly. With this type of loan, you may only need a small deposit, or in some cases, no deposit at all. A guarantor, typically a family member, uses the equity in their own property as additional security for your loan. This means they are essentially guaranteeing your loan repayments. Should you be unable to meet your repayment obligations, the lender has the right to recover the debt from the guarantor’s property. This agreement can significantly enhance your ability to secure a loan, especially if you have a smaller deposit or a limited credit history.
One of the significant advantages of a guarantor home loan is the potential to avoid paying Lenders Mortgage Insurance (LMI). LMI is usually required when borrowers have less than a 20% deposit, and it can add thousands of dollars to the cost of buying a home. By having a guarantor, you can bypass this expense, making homeownership more affordable.
How a guarantor home loan works:
You want to buy a property costing $500,000. You have saved a deposit of $50,000. That equals to 10% of the property´s value. Unless you have a deposit of at least 20%, or $100,000 in this example, the lender will ask you to pay LMI. Instead of waiting to save an additional $50,000, a guarantor home loan can offer a solution. If a guarantor offers $50,000 of their own home equity, it is set as an extra security for your loan. This advantage will give you the 20% security you need to buy the property today without paying LMI.
The guarantor is not required to make any payments on your loan. However, if you are unable to continue making your repayments, the lender will look to the guarantor to cover the repayments. This arrangement allows you to secure a home loan even with a small deposit. While a guarantor home loan can be a great way to enter the housing market more quickly, it is essential for both the borrower and the guarantor to thoroughly understand the responsibilities and risks involved. The guarantor’s property is at risk if the borrower defaults on the loan, which can have signific