Family Guarantor Home Loans
Family Guarantor Home Loans
Family guarantor home loans can be a valuable option for first-time homebuyers or those with limited savings for a deposit. This type of loan allows a family member, usually a parent or close relative, to provide additional security for the loan by using their property as a guarantee. Here's how family guarantor home loans work and their potential benefits and considerations.
How Family Guarantor Home Loans Work:
In a family guarantor home loan arrangement, the guarantor offers their property or savings as collateral to secure the borrower's loan. This additional security reduces the risk for the lender, allowing the borrower to access a higher loan amount or a loan with a lower deposit requirement.
For example, suppose a borrower wants to purchase a home but has a deposit below the lender's required threshold, typically 20% of the property's value. In that case, a family member can act as a guarantor by using their property as security. The guarantor's property equity serves as a guarantee for the loan, enabling the borrower to proceed with a home purchase without a substantial deposit.
Benefits of Family Guarantor Home Loans:
- Higher Loan Amounts: With a guarantor, borrowers may qualify for a larger loan amount than they could on their own, making homeownership more attainable.
- Lower Deposit Requirements: Family guarantor loans often allow borrowers to secure a loan with a lower deposit, reducing the upfront savings needed.
- Avoiding Lenders Mortgage Insurance (LMI): By providing additional security, family guarantor loans may eliminate the need for LMI, which is typically required for loans with deposits below 20%.
Considerations for Borrowers and Guarantors:
- Risk to Guarantor: Guarantors should understand the potential risks involved, as they are offering their property as security for the borrower's loan. If the borrower defaults on the loan, the guarantor's assets may be at risk.
- Open Communication: It's crucial for both borrowers and guarantors to have open and transparent communication about financial responsibilities, expectations, and potential outcomes.
- Exit Strategy: Family guarantor arrangements should include an exit strategy outlining how and when the guarantor's security can be released, so that the bank no longer has it listed as a security guarantee. This is achievable when the borrower's equity in their own property reaches a specified level, so they no longer need the extra security guarantee.
Family guarantor home loans can be a practical solution for borrowers looking to enter the property market with a smaller deposit or access a larger loan amount. However, it's essential for both borrowers and guarantors to fully understand the implications and risks associated with this type of loan arrangement and seek professional advice if needed.
Contact Priority Home Loans to find out more about family guarantor home loans.