Guarantor Home Loan
Borrow 105%+ with a guarantor
Guarantor loans are now the only way to borrow 100% of the purchase price as traditional no deposit home loans have been withdrawn from the market. Did you know that there are stark differences between the guarantor supported loans offered by different lenders?
With the help of a guarantor you can borrow over 100% of the purchase price which will allow you to buy a home and pay for purchasing costs such as stamp duty at the same time.
- How much can you borrow?
- The benefits of “going guarantor”
- Types of guarantees
- Guarantor loan calculator
- Why do you need expert advice?
- Will you get approved?
- Guarantee structure
- Borrowing more than 105%
- Who can be your guarantor?
- Limiting the size of the guarantee
- Apply for a guarantor loan
How much can you borrow?
- First home buyer guarantor loan: 105% of the property value.
- Construction guarantor loan: 105% of the total land value & cost of construction.
- Refinance guarantor loan: 100% of the property value.
- Debt consolidation & purchase guarantor loan: 110% of the property value.
- Investor guarantor loan: 105% of the value of your investment property.
Most lenders will cap the loan amount at 100% of the purchase price with a family guarantee or will require that you have saved a small deposit.
Some of our lenders are happy to consider lending 105% of the purchase price, which allows you to buy a property and pay for the stamp duty without any savings whatsoever.
Do you qualify for a mortgage to buy a home with no deposit? Please call our mortgage brokers on 1300 889 743 or enquire online to find out how we can help you.
The benefits of “going guarantor”
From the banks point of view, if you are borrowing more than 80% of the value of your property then there is a chance that the bank will lose money if you can’t make your repayments. Because of this they charge you a fee known as Lenders Mortgage Insurance to protect themselves in case there is a loss. This fee can be quite significant. Recently no deposit home loans have been withdrawn from the market making family pledge style guarantor loans the only way to borrow 100% of the purchase price or more.
Guarantor loans have several benefits for you as the borrower:
- Save money by avoiding Lenders Mortgage Insurance (LMI).
- You can borrow more money.
- You can consolidate some minor debts such as credit cards when you buy your home as long as your loan does not exceed 110% of the purchase price.
- You do not need a deposit, allowing you to buy a home now.
Our mortgage brokers are experts in family pledge loans and other mortgages that are supported by a guarantee. Please call us on 1300 889 743 or enquire online and we can go through your options with you.
What types of guarantees are there?
Security guarantee: With this type of guarantee the guarantor uses real estate that they own as additional security for your loan. If the guarantor already has a loan on their property then in most cases the bank can take a 2nd mortgage as security. This type of guarantee is most often used when first home buyers are buying a home, have an excellent income, but no deposit. The guarantor is also called an “equity guarantor” by some lenders.
Security & income guarantee: A security and income guarantor is most often a parent helping their son or daughter who is a student or who has a low income to buy their first property. The lender will use the parents property as additional security and will rely on the parents income to prove that the loan is affordable.
Family guarantee / parent guarantee: This is the name given for when the guarantor is directly related to the borrowers. Banks refer to this as a “parental guarantee”. Grandparents, siblings and other family members as guarantors can be considered on a case by case basis.
Limited guarantee: A limited guarantee is where only part of the loan is guaranteed by the guarantor. This is most often used with security guarantors so as to reduce the potential liability secured on the guarantor’s property. Guarantees can be either limited or unlimited, depending on both the guarantors wishes and the lenders requirements.
Guarantor loan calculator
We’ve created a tool that you can use to work out if you qualify for a home loan & then to calculate the size of the limited guarantee. The tool checks your situation against the policies of five major lenders that offer guarantor loans, and then lets you know if there is anything about your situation that can cause your loan to be declined.
Why do you need expert advice?
Home loans supported by a guarantee go by many names and are offered by many lenders. There are many aspects to consider when applying for this type of mortgage:
- Getting approval: Lenders are more conservative than ever, did you know that lenders are particularly conservative with guarantor loans? We know which lenders accept which types of guarantees and which lenders will accept someone in your situation.
- Know the terms and conditions: Some banks have simple terms and conditions for their guarantor loans and allow you to limit the amount of the guarantee. However many lenders will not limit the guarantee which means the guarantor could lose their home if you are unable to repay your loan.
- The exit strategy: The loan may have a term of 30 years however you don’t need to keep the guarantee in place for that long. We can help you work out a strategy of either making extra repayments or refinancing to remove the guarantee in as little as 2 to 5 years.
- Protecting the guarantor: In the event that you can’t pay your loan then how can you protect your guarantor from having to pay your loan and possibly losing their home? Did you know that you can reduce the risk to the guarantor by obtaining insurance? Talk to us to find out how.
If you don’t set up your mortgage in the right way then you may be putting your parents at a higher risk, or you may not be able to remove the guarantee as quickly as you would like. Please call our mortgage brokers on 1300 889 743 or enquire online to find out how we can help you.
Will I get approved?
From a banks point of view, any loan with a guarantee is a lower risk as there is more security for the loan, however there is the additional risk of involving someone in the loan who is not a borrower. For this reason the lending criteria for these mortgages are slightly different to those used with normal loans.
Below is a list of common situations that are less accepted by the banks:
- Consolidating debts: Very few lenders will allow you to buy a home and consolidate your credit cards or personal loans at the same time. We know which lenders will allow you to roll everything into one simple, low repayment each month. Note that you can only consolidate a few minor debts, if your debts are over 5% of the purchase price then you will not be able to roll them into the mortgage with any lender. Your repayments must be on time, every time, before a lender will allow you to combine them into your new mortgage.
- First home or 2nd home?: Many lenders will not allow 2nd home buyers to buy a home using a guarantor loan as they expect that you should have a strong enough asset position to buy a property on your own. Still other lenders ask first home buyers to explain why they are able to pay a loan if they haven’t been able to save a deposit! We know which lenders are less conservative when assessing their guarantor loans.
- Investment loans: Only two or three lenders in Australia will accept investment loans supported by a guarantor.
- Guarantors with a loan on their property: Many lenders will not take a 2nd mortgage as security for a guarantee. We have access to lenders that can accept guarantors that are still paying off the home loan on their property as long as they have sufficient equity.
- Do you have any savings?: Even though guarantor loans allow you to borrow 100% of the purchase price many lenders still require you to prove that you can save at least 5% of the purchase price on your own. Talk to us to find out which lenders do not require genuine savings.
- Elderly guarantors: Most of the banks and other lenders in Australia will not accept a security guarantee from an elderly guarantor. We know of lenders that can accept guarantees from pensioners and self funded retirees over 65 years of age.
We are experts in guarantor supported home loans and can quickly assess your situation, work out which lenders can approve your loan and which loans would be the cheapest for your situation. Our additional free services include reminding your when it may be possible to remove the guarantee and discussing the proposed loan with the guarantor to make sure they understand and are comfortable with it.
To talk to a mortgage broker that specialises in guarantor supported lending please enquire online or call us on 1300 889 743.
How is the mortgage for the guarantee structured?
The loan is secured by both the property that you are buying and the property owned by the guarantor. It is quite simple, and if you use a limited guarantee then the guarantor can reduce their exposure to your mortgage.
Borrowing more than 105%
In the past lenders commonly allowed people to borrow 120% with a guarantor home loan and in some cases as much as 150% of the purchase price. These loan types are no longer available. The maximum you can borrow is 105% of the purchase price with most lenders and 110% if you have debts to consolidate.
Many people wishing to buy a home have significant consumer debts such as credit cards and personal loans. If you are in this situation then generally you will be able to consolidate debts as well as purchase a property as long as your total debts are not more than 10% of the purchase price.
Who can be a guarantor?
Most banks will only allow parental guarantees, i.e. a guarantee from the borrower’s parents. Some lenders can consider guarantees from immediate family members such as siblings, grandparents, spouses, de facto partners or adult children. This is because banks want to make sure that the guarantor has a strong relationship with you.
Generally if your guarantor is not part of your immediate family then you may be required to prove some savings as evidence that you are financially stable and the lender is also likely to restrict your loan to 100% of the purchase price.
How much is the guarantee limited to?
In the vast majority of guarantor loans we ask the lender to limit the guarantee secured on the guarantors property. This means they are not liable for the entire amount of the loan, only a portion of it. The size of the limited guarantee is calculated as follows:
Size of the limited guarantee = (Loan amount / 0.8) – value of the property the borrower is buying.
For example if you are buying a property for $300,000 and are borrowing $315,000 to cover your expenses such as stamp duty then the calculation would be:
$315,000 loan amount / 0.8 = $393,750
$393,750 – $300,000 value of the property you are buying = A limited guarantee of $93,750
How do lenders work out if your guarantor has enough equity in their property? The total debt secured on the guarantors property, for example their current home loan plus the new limited guarantee, must be less than 80% of the value of their property.
For example if your guarantor had a home loan with $100,000 owing and they needed to give a limited guarantee of $93,750 then the total debt secured on their property would be $193,750. Their home must be worth $242,200 or more for the guarantor loan to be approved.
What names are used for guarantor loans?
Every lender seems to have come up with their own name for guarantor loans! St George Bank uses the term “Family Pledge”, CBA uses the term “Family Support” or “Family Equity”, Rams uses the term “Fast Track” whereas ANZ and Westpac use the term “Family Guarantee”. Confused yet?
Don’t worry, they all mean essentially the same thing. Most of these terms refer to a security guarantee, as only a few select lenders allow other types of guarantees. There are big differences between the bank’s credit guidelines, loan types and discounts for family guarantee loans. Please enquire online to speak to a mortgage broker and find the best deal for you.
100% construction loans
Yes, it is possible to borrow 100% of of the land & construction costs if you have a guarantor.
However, be aware that many lenders do not allow “loan increases” on guarantor loans. What this means is that if you buy the land and then apply for the construction loan later it may be declined!
Please call us on 1300 889 743 to discuss your situation, we know how to structure your loan to get it approved!
Removing the guarantee
Ultimately you do not want the guarantee to be in place for the entire term of the 30 year loan. You should apply to the bank to remove the guarantee when the following conditions have been met:
- You can afford the repayments without any assistance.
- Your loan is for less than 90% of the property value (ideally 80% or less).
- You haven’t missed any payments in the last 6 months.
Most people are able to remove the guarantee somewhere between 2 and 5 years after they initially set up the loan, although this can vary significantly. Because many guarantees are set up because the borrower has no deposit, removing the guarantee most often depends on how much the property appreciates in value and how much in extra repayments the borrower can afford to make.
You can still remove the guarantee if you owe more than 80% of the property value however you may have to pay Lenders Mortgage Insurance (LMI) to achieve this.
80/20: Low doc guarantor loans
Low doc loans cannot be used with the support of a guarantor as lenders are very conservative with their assessment of no financials home loans. However it may be possible to get around this if the guarantor takes out a loan on their property and lends this to you for you to use as your deposit. Although this is not an ideal situation, it can work for some borrowers.
We call this the 80/20 method as you will borrow 80% of the property value and your family member will borrow the other 20% on their property. Many lenders do not accept this method of financing so please enquire online to speak to a mortgage broker that understands this loan structure.
Get legal and financial advice
Guaranteeing somebody else’s loan is a major commitment and so you should always seek advice from the appropriate professionals such as your solicitor before deciding to proceed.
Apply for a loan with a guarantor’s support
We are experts in guarantor supported home loans and will help you find the most suitable loan as well as discuss various options with you to protect the guarantor.
Please enquire online to discuss if this type of loan is appropriate for you and which type of guarantee is required to get your loan approved.