Using My Parents As Guarantors To Buy My First Home

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SallyA
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Joined: Thu Jul 18, 2019 2:29 pm

Using My Parents As Guarantors To Buy My First Home

Postby SallyA » Thu Jul 18, 2019 2:38 pm

I recently graduated from Victoria University. I am hopeful to use my parents as a guarantor to obtain a home loan in Melbourne. Is this possible? I have asked my parents to be guarantors, and they are happy to help me :)

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Otto Dargan
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Re: Using My Parents As Guarantors To Buy My First Home

Postby Otto Dargan » Thu Jul 18, 2019 4:14 pm

Hi Sally A,

Thank you for reaching out to us and welcome to the forums.

Yes, your parents can be accepted as guarantors by banks if they are both Australian citizens. Guarantor loans are perfect for you as it allows you to borrow 100% of the purchase price. It is the only no deposit home loan that is prevalent in the market right now.

There are 4 different types of guarantee you need to know before taking up a guarantor loan:

  • Security guarantee: In this guarantee, the guarantor uses their property to secure your home loan. Even if there is already a home loan on the property, you might be eligible to take out a second mortgage. This guarantee is popular with first home buyers who have a good credit history and no deposit.
  • Security and income guarantee: This guarantee is common for parents who want to help their children to buy their first property. Besides providing their property as security, their income can also be used as additional security.
  • Family guarantee/parent guarantee: It is also referred to as “parental guarantee” as the guarantor is directly related to the borrowers. These guarantors can even include siblings, grandparents and other related family members, however, they are considered on a case by case basis.
  • Limited guarantee: As only part of the loan is guaranteed by the guarantor, this reduces any potential liability of the guarantor’s property.

Our specialist mortgage brokers are experts in guarantor home loans.
If you need any help, call us on 1300 889 743 or complete our free online assessment form so we can go through your options.
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

SallyA
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Joined: Thu Jul 18, 2019 2:29 pm

Re: Using My Parents As Guarantors To Buy My First Home

Postby SallyA » Thu Jul 18, 2019 4:37 pm

That’s great to know. If I choose the limited guarantee scheme, what is the limit?

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Using My Parents As Guarantors To Buy My First Home

Postby Otto Dargan » Thu Jul 18, 2019 6:44 pm

Hi Sally A,

With a limited guarantee, you can limit the amount of guarantee on the guarantor’s property so that your parents are not 100% liable for your mortgage.

Lenders use the following formula to calculate the size of the limited guarantee:
Size of the limited guarantee = (Loan Amount – (0.8 * Purchase Price))/0.75.

To get an estimate of the amount, make use of our Guarantor Loan Calculator.

You will simply need to enter details of your purchase price and the loan amount and the details of your guarantors (in this case your parents') property value and home loan and answer a list of questions about your guarantor and how you will be acquiring the loan from the guarantor. After which, you will receive an estimate of the size of the limited guarantee.
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

SallyA
Posts: 3
Joined: Thu Jul 18, 2019 2:29 pm

Re: Using My Parents As Guarantors To Buy My First Home

Postby SallyA » Thu Jul 18, 2019 6:49 pm

Thanks for your help.
Both of my parents are Australians and are working, but they do have some qualms about being my guarantor. Should they be worried?

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Otto Dargan
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Location: Sydney, Australia
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Re: Using My Parents As Guarantors To Buy My First Home

Postby Otto Dargan » Thu Jul 18, 2019 7:16 pm

Hi Sally A,

It is understandable for your parents to have some uneasiness about being your guarantor, but they do not need to worry.

While they are liable for the guaranteed amount if you default, banks will try their best to solve this issue before going down this drastic path as it is a lengthy and expensive process to sell a guarantor's home.

This is maybe where you want to talk about insurance for the guarantor, and when you can remove the guarantee.

It's always good to seek advice from a financial adviser to make sure you choose an insurance product that suits your needs and financial situation. You are also required to seek legal advice when entering into a guarantor agreement.
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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