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The Perfect Manual for Guarantor Support Home Loans
Guarantor home loan (also known as Family Pledge Finance) is widely common amongst first home buyers and for persons with limited credit history. Parents play a crucial role in upbringing their children and with house prices and the cost of living on the rise, they also continue to support their children to purchase their first home or investment property.
Definition of a Guarantor
A guarantor is best-defined as being a third party (i.e. family member or best friend) who promises to provide payment on a loan or other liability in the event of default.
Are you looking for a Guarantor Home Loan?
You may require a guarantor if you are looking at applying for a home loan and the lender/credit provider was concerned about the following factors:
You may not have saved the necessary 20% deposit to purchase your dream home
Your credit history, or
What are the Benefits of Having a Guarantor?
By having a guarantor, you may be able to buy your dream home. Other benefits of having a guarantor can be:
Some lenders/credit providers will allow you to borrow 100% of the purchase price plus 5% costs of your first home or investment property without the need for proof of savings
By reducing the Loan-to-Value Ratio, (LVR) to 80%, or less, you will save on the Lenders Mortgage Insurance (LMI) premium
It is much easier to borrow at a Loan-to-Value Ratio (LVR) of 80%. Because, the lenders/credit providers are much more comfortable with the level of the lending ratio at 80% in comparison to borrowing at say 95%
The benefits of how a Guarantor Home Loan works is best illustrated in the following example. The example assumes the following:
Purchase price: $500,000
Borrowing amount: $500,000
Guarantor property value: $800,000
From the above example, if the lender/credit provider restricts 80% exposure on the guarantor's property valued at 80%, then the Loan-to-Value Ratio (LVR) will be 63%, and it is much easier for you to borrow on an LVR of 63%.
What are the Impacts of being a Guarantor?
Like many people, you may believe that your responsibility to being a guarantor is limited only to ensuring that your family member or best friend pays the debt on time. However, as a guarantor you are not only bound to pay the home loan amount if the borrower defaults, but the transaction can have a negative impact on your credit score rating.
Have you been asked to be a Guarantor for a Loan?
If you have been asked to be a guarantor for a loan to support a family member or best friend, do not take tension. Before, you feel weighed down by the obligation to become a guarantor, you should consider what you will get out of the arrangement given that you will be responsible for repaying the loan if the borrower fails to repay the loan. Because, as a guarantor:
You are liable in the event that the borrower (i.e. your children or best friend) will fail to repay their loan
You may be required to service the portion of the loan that you have placed a guarantee for, in the event of a loan repayment default
You can lose your house in the event of default by the borrowers
You can provide either your owner occupied or investment property as security
You may have to refinance your existing loan to provide a guarantee to the borrowers, and they will then have to undergo a full assessment of your financial position
You may find that some lenders/credit providers will not accept 2nd mortgages as security for the guarantee
Seek Independent Legal and Financial Advice
As part of the lenders/credit providers requirements, guarantors will be asked to seek independent legal and financial advice. You should also seek this advice before becoming a guarantor, so you will have a clear understanding of your legal and financial obligations.
Why Choose Singh Finance?
It is always advisable to start the finance application process with Singh Finance as soon as possible, because:
We know what the standard requirements for family pledge home finance are
We can accommodate a much faster credit decision for you, provided that we receive from you all the required documents as soon as possible
We can calculate how much you can borrow
We can calculate your interest rate and the monthly loan repayment amount
Our team of expert finance brokers have successfully helped a number of clients with guarantor home loans
We know the numerous lenders credit policies and procedures as we deal with them on a regular daily basis
While you concentrate on getting your first home or investment property, our team of professionally qualified finance brokers will:
Look at your overall financial position, and they will establish a budget for you
Eliminate the stress and time it takes in running around trying to find your finance package solution and at the right price
Our finance brokers will also provide you with a convenient pre-approval so that you will have the peace of mind knowing that:
Your guarantor supported home loan application has already been assessed by an accredited finance broker and in accordance with the responsible lending criteria
Your finance is already pre-approved, and you will also know the conditions of your pre-approval
You have the upper hand when negotiating the sale price with the vendor or real estate agent
If you are currently considering applying for a home loan, or for any other purpose and want an obligation free assessment, please contact us on 0424 190 908 or enquire online now.