Guarantor Loan

Why use a Guarantor Loan Facility?

As the financial data and statistics are indicating, it is taking longer to save for a deposit for a First Home Buyer or even a second time buyer towards the purchase of a property as cost of living increases. Therefore, Mums, Dads and family members are helping their children get into the property market while they are still young.

Why choose to wait to save a deposit, when lenders offer Guarantor loan products to assist borrowers with no deposit, or limited deposit who have a family member (or Any Relationship) willing to use equity within a property to take advantage of guarantor lenders products such as; Guarantor Support Loans, Family Pledge Loan, Family Guarantee Loan and many more type of loans to fast-track their housing dreams.

The added benefit of a guarantor loan, allows the applicant / borrower to decrease the loan amount for the purchase to 80% LVR (Loan to Value Ratio, LVR), to avoid paying Lenders Mortgage Insurance (LMI), and to maximise the amount they can borrow up to 100% of the purchase price. Some lenders will allow you to borrow the Full Asking Price of the property, plus costs such as Stamp Duty and other Legal Fees and charges via the loan against the guarantors, Mum, Dad, Family members or Any Relationship security or personal guarantee.

Lender’s Mortgage Insurance (LMI) is generally payable on loans that exceed 80% of the value of the property, therefore utilising a guarantee type loan, the guarantor can limit the guarantee to 20% to 25% against the guarantor’s property and the 80% loan is secured against the borrowers new property purchase.

Guarantor loans are the only current 100% loan product available to allow the first home buyer, second home buyers or even investors with no deposit to purchase their first home or additional property. A few lenders do require borrowers to have saved a small deposit.

What is a Guarantor Loan?

A Guarantor loan is where (traditionally) a family member utilises equity within a property to make the equity available as the deposit normally 25% to put towards a property purchase. The property purchase can be for a new home, a first home buyer, to construct a home and even for an investment purchase. The borrowers need to be able to service the loan or to keep it simple, to afford to make the loan repayments on 100% or the whole amount of the loan. Guarantor loans are the only current product available which allow the first home buyer with no deposit to purchase their first home.

3 Types of Guarantors

Security Guarantee

Servicing Guarantee

Security & Servicing Guarantee

Why use a Guarantor?

+ If you have NO Deposit however, wish to purchase a property,
+ If you do not wish to pay the Lenders Mortgage Insurance,
+ If you wish to borrow up to 100% and/or more of the property purchase price.
+ If you have a parent or family member who wishes to help you buy a property or help to purchase your first home.

Can I Borrow 100% to Purchase a Property

Yes, you are able to borrow up to 100% of the purchase price of the property. A few lenders will allow the borrowing amount to exceed 100% to cover cost associated to the purchase such as Lender Setup Fees, Stamp Duty and other Legal Fees. A few selected lenders will allow for minor debt consolidation on Guarantor loans which also exceed the borrowing amount of 100%.

What Types of Guarantees are Available?

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Security Guarantee

This type of guarantee uses the guarantor’s real estate they own as additional security for your loan. The security type of guarantee is ideal for the first home buyers buying their first home. If you are on good income but have no deposit then this type of Guarantee would be suited.

Servicing Guarantee

A servicing guarantor is when a parent helping their son or daughter whose income is not enough to service the loan amount or to buy their first property. The lender will use the parent’s income to assist with servicing the loan as well as using the property as security.

Security & Servicing Guarantee

As per the Servicing Guarantee, if the son or daughter’s income is not sufficient to make the loan repayment, known as loan servicing, the parents would go as guarantor to assist with servicing the loan repayments plus providing the home or investment property as security to assist their children to purchase the property.

Who can be a Guarantor?

Prior to 2012, a guarantor must have been related to the borrower as an immediate family member in one of the following ways, until one lender allowed anyone to be a guarantor:

+ Friend

+ Siblings

+ Children

+ Employer

+ Employee

+ Parents / In-Laws

+ Spouse / Defacto spouse

+ Legally appointed guardian

+ Trust and its trustees

+ Company and its directors

+ Company and Trust entities where the relationship between the shareholder, director & trustee and the borrower is in line with the above.

Who else can be considered a Guarantor?

If you don’t have an immediate family member as a Guarantor, one in the list below may be considered. Each lender looks at guarantors on a case by case basis however the below list will be considered by an additional few more lenders:

+ Grandchild

+ Aunt / Uncle

+ Grandparent

+ Nephew / Niece

+ Former spouse (court order)

+ Individuals who are self-funded retirees

+ Individuals who are self-funded retirees and the security used to support the guarantee is jointly owned with an eligible borrower

+ Company and Trust entities where the relationship between the shareholder, director, & trustee and the borrower is in line with the above.

Guarantor has a Second Mortgage on the Property

Most lenders will consider a second mortgage behind the first lender. If the guarantor already has a mortgage or loan on their property then most lenders will consider (case by case) to take a second mortgage behind another bank but may not take a second mortgage or loan if the financial institution is a building security or a non-bank lender.

I wish to Purchase a Property with a Guarantor!

If you are at this stage of the process then you have agreement from your guarantor to utilise equity in a property for security to assist in your property purchase.

Once you have made contact with us, we will take the time to explain the loan structures, the processes involved and the steps required in the guarantor process.

For a guarantor loan you the borrower and the guarantor will need, as lenders request that you all seek legal and financial advice prior to loan settlement.