Family Guarantee Loans allow parents (or family members) to provide a portion of their home as security towards your home loan. With the additional security, you can buy a home with little to no deposit, while avoiding lenders mortgage insurance.
How it works
Generally, lenders will require a deposit of at least 5-10% of the homes value - provided you pay lenders mortgage insurance. If you want to avoid paying lenders mortgage insurance, you will require a 20% deposit, or you could nominate a family guarantor.
With a family guarantor, your family member can use a portion of their home equity as a security guarantee for your loan. With the additional security, the bank may lend up to 100% (plus purchase costs) for your new home.
This may allow you to buy a home with little to no upfront deposit required. Better yet, you can also avoid paying lenders mortgage insurance.
Who can be guarantor?
Guarantors are generally limited to immediate family members (depending on the lender). This may include parents, siblings, children and grandparents.
In order for a family member to guarantee your loan, they will need to have enough equity in their home. Equity is the difference between their current home value, and the amount owing on their mortgage.
Generally, they will need enough equity to cover 20-25% of your home loan. In addition, they will need to meet the banks individual requirements.
Know the risks
It’s important that both you and your guarantor understand all of the conditions and obligations of a family guarantee before signing.
Guarantors should consider the following:- Ensure you are confident with both yours, and the borrower’s financial situation.
- You will be liable for the guaranteed amount, so you will need to pay that amount to the lender if the borrower can’t repay their loan and defaults. This could mean if you have used your home’s equity as security, and don’t have cash to pay the lender upfront if asked, your house may need to be sold to cover it.
- While acting as guarantor, your ability to borrow may be reduced.
- Guarantors should understand all the conditions and should seek legal advice before entering into any guarantee agreement. In fact, most lenders will insist on this, prior to accepting a guarantee.
Key points
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Our lending specialists are qualified mortgage brokers who can assist you with a family guarantor home loan. If you're ready to start your journey to home ownership, you can find out if you qualify for a new home purchase today!
