Last Updated: 21st January, 2018

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How Do Guarantor Home Loans Work?

Published by Otto Dargan on November 16, 2014

Are you struggling to save up enough for a deposit to buy a home?

According to the RP Data-Rismark Home Value Index (May 2012-June 2014), the past two years has seen average capital city house prices rise by around 16 per cent. That’s great if you’re an investor.

For first home buyers though, trying to save enough to crack the property market is like chasing your own tail.

Luckily, there are ways to get into the property market now with little to no deposit without having to sell your own mum. In fact, you’ll need her!

Go guarantor: No deposit and LMI required!

If you don’t have a deposit and your parents own their own home, one of the most popular no deposit solutions is a guarantor loan.

The plus side of this type of finance is that you may be able to borrow up to 105% of the purchase, including stamp duty and the other costs associated with buying a home.

On top of that, you won’t be required to pay Lenders Mortgage Insurance (LMI), a one off fee usually charged when borrowing more than 80% of the purchase price.

With some lenders you can even get massively discounted interest rates. All this with no deposit down!

Whoah now! Don’t rush out the door just yet. There’s a few things to keep in mind.

What do you need to keep in mind?

Some lenders will accept a second mortgage on your parents’ home but there will need to be sufficient existing equity in the property, that is, the total debt secured on their property must be less than 75-80% of the property value.

Other lenders will not accept a second home loan at all and may even require that your parents have a job in order to mitigate some of the risk.

Alternatively, your parents can use an investment property or money in a term deposit as security for the guarantee.

Although you won’t need a deposit with a guarantor loan, some lenders have harsh scoring and may be require borrowers to have at least some savings of their own.

Luckily, your parents can gift or lend you the money for the deposit. In addition, some lenders will even consolidate any small existing debt you might have including credit cards or car loans into your home loan.

You should aim to remove the guarantee as soon as you owe less than 80% of your property value, either from the property going up in value or you making mortgage repayments.

Worried about leaving your parents with outstanding debt?

Most people are able to remove the guarantee around 3 to 5 years after they initially set up the loan.

If you’re struggling to save up enough for a deposit in a rising property market, now’s the time to be that extra little bit nicer to your mum and dad. A guarantor loan could just be the ticket to an amazing home.

Our mortgage brokers are experts in guarantor loans and we know which lenders can help!

Please call us today on 1300 889 743 or complete our free online assessment form and we can tell you if you qualify for a guarantor home loan.