Guarantor Loans

The Basics of Guarantor Home Loans

Saving that initial first deposit is often described as the hardest part of getting into the market.
There is nothing worse than scrimping every dollar all the while house prices are skyrocketing and you know you are missing out on potential capital growth.
One way to speed things up and help get you into your own home faster is with a Family Guarantee – it’s a helping hand from a family member, who agrees to be your home loan guarantor.

It’s important that you get independent financial and legal advice to understand what you’re potentially signing up for. Remember, you’ll be responsible for paying for the borrower’s home loan should they not be able to make repayments.

How does a Family Guarantee work?

A Family Guarantee is when a family member agrees to secure your home loan. This means if you don’t pay your debt, it falls to the family member to pay it. The family member guaranteeing payment of the home loan is known as a ‘guarantor’.

Our Family Guarantee is structured as two separate loans:

  • One loan for the majority of the property value (usually 80%) – this is secured solely by the home you buy
  • One smaller loan for the remainder of the property value (usually 20%). This is secured by the home you buy and by a portion of the equity in your guarantor’s property.

Thomas Nisbet – Even being in North Queensland purchasing a property, Justin was great with his communication. He got my home loan sorted a lot quicker than I thought was even possible as well as keeping me in the loop the entire way. I would highly recommend.

Common Questions For Guarantor Loans

Why get a family Guarantee?

  • You can spend less time saving for a deposit or even not need one at all, so you can get on the property ladder sooner
  • You can borrow up to 100% of the property’s purchase price plus applicable fees without having to pay Lenders’ Mortgage Insurance (LMI) – which you would normally have to factor into your budget if you were borrowing more than 80% of the property’s purchase price.

When does the family guarantee end?

Once you’ve paid off the second smaller loan, you can apply to remove the guarantee. This means your guarantor will only be liable for as long as it takes you to pay off the smaller loan. You can even make extra repayments to help release the guarantor’s property sooner. Or you are able to refinance your home loan once you have over 20% equity in your home.

How is gifted money looked at by banks?

If you’re having a hard time saving for your first home, your family can help you with a cash gift to put towards your deposit

A gifted deposit home loan may not be as simple as going up to a lender with your parent’s cash. Lenders are likely to ask for evidence of where the money has come from. Some lenders will request a ‘gift letter’, which states that the funds have been handed over unconditionally and without expectation of repayment. Even with a gifted deposit, lenders still like to see that you have the discipline to keep up with home loan repayments. To satisfy this you may be asked for evidence of genuine savings, including your past rental history.