Avoid LMI and Get 100% Home Financing with a Guarantor Loan

Our clients often ask about the benefits of using a guarantor loan facility. With the cost of living increasing year after year, it is becoming harder for first home buyers or even second-time buyers to save for a deposit towards purchasing a property.

This is where a guarantor loan can be beneficial.

Many lenders offer guarantor loan products to assist borrowers with no deposit or limited deposit, who have a family member or someone they have a relationship with willing to use the equity within a property to take advantage of guarantor lenders’ products. These products include, Family Pledge Loans, Family Guarantee Loans, and a few others. With these loan products, applicants can fast-track their housing dreams without having to wait to save for a deposit.

One of the added benefits of a guarantor loan is that it allows the borrower to decrease the loan amount for the purchase to 80% Loan to Value Ratio (LVR). This helps avoid paying Lender’s Mortgage Insurance (LMI), and maximises the amount they can borrow, up to 100% of the property purchase price. Some lenders will even allow borrowers to borrow the full asking price of the property, including costs such as stamp duty and other legal fees and charges, against the guarantor’s security.

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

Guarantor loans are the only current 100% loan product available to allow first home buyers, second home buyers, or even investors with no deposit to purchase their first home or additional property. While a few lenders may require borrowers to have saved a small deposit, guarantor loans provide a viable option for those struggling to save for a deposit.

Guarantor loans can be an excellent option for borrowers looking to enter the property market without having to wait to save for a deposit. With the right advice from a credit adviser or mortgage broker, borrowers can take advantage of these loan products and get a head start on their housing dreams.

Can a Guarantor have a Second Mortgage on Their Property?

If a guarantor already has an existing mortgage or loan on their property, they can still apply for a second mortgage to guarantee a loan. However, this will depend on the lender and the specifics of the case. Some lenders may not agree to take a second mortgage or loan if they are a building society or a non-bank lender. The lender who has the first mortgage over the property must provide “Consent” to allow another lender to assign a second mortgage. However, it’s essential to note that if there isn’t enough equity in the guarantor’s property, the first mortgagor may not provide consent for a second mortgage.

It’s crucial to speak with the guarantor to determine whether they have an existing mortgage or loan on their property and whether there would be enough equity to accommodate two mortgages. Different lenders have varying policies when it comes to second mortgages, and they may reduce the borrowing amounts.

At Neomoney, we can assist with these details once we understand the loan amounts required, so please don’t hesitate to reach out to us.