Income Guarantee Home Loan

If you’re earning a decent income but still can’t quite borrow enough to buy a home, you’re not alone. With today’s lending rules, many Australians find themselves stuck, even with a guarantor.

That’s where an income guarantee home loan comes in. It’s a setup where your parents don’t just help with the deposit; they also support your ability to repay the loan, which can make the difference between getting approved or missing out.

What Is An Income Guarantee Home Loan?

An income-guarantee home loan is a type of guarantor loan in which your parents help in two ways.

First, they offer part of their property as security. Second, they agree to step in and help with repayments if needed. Because of this, the lender looks at both your income and your parents’ income when deciding whether to approve the loan.

This is different from a standard guarantor loan, where your parents only help reduce the deposit or avoid LMI. Here, they’re helping you actually qualify for the loan in the first place.

How Does An Income Guarantee Home Loan Work?

In most cases, the loan is structured so that 80% of the property value is secured against the home you’re buying. The remaining amount, including a portion of the purchase costs, is typically secured against equity in your parents’ property.

Depending on the lender, your parents may also need to be co-owners of the property and sign a declaration confirming they will assist with repayments if you are unable to meet them.

Because this is a specialised policy area, lender requirements can vary.

How Much Can I Borrow With Parental Income Support?

You can borrow up to 105% of the property value, which includes the purchase price plus the costs of completing the purchase, including solicitor’s fees, stamp duty and any loan application fees that may apply.

You can also avoid the cost of Lenders Mortgage Insurance (LMI) and even borrow a little more (up to 110%) to consolidate any outstanding debts you may have to the lower interest rate that applies to your home loan.

How Do My Parents Qualify For An Income Guarantee Home Loan?

If you’re asking your parents to help with your home loan, each application will be assessed on a case-by-case basis by select lenders.

Your parents’ security

As a general rule, they prefer to see that your parents own anywhere between 1% to 50% of the property (in most cases, 20% ownership is required).

It also depends on the type of purchase that you’re looking to make:

• Owner occupied: Minimum ownership of 10% with some lenders as an exception.
• Investment: Minimum ownership of 1%.

Your parents’ income

The lender will be checking to see that you and your parents’ income is enough to support the full loan amount, not just each of your respective percentages of ownership.

That’s why, generally, an income guarantor solution is only suitable for high income or high net worth parents.

To verify your parents’ income, the bank will normally ask for their two most recent payslips or their two most recent individual and company tax returns if either of them are self employed.

Get legal and financial advice

It’s usually a requirement for home loan approval that you and your parents speak to a qualified solicitor and a financial adviser before asking them to help pay your mortgage.

It’s important to keep in mind that you, as the borrower, and your parents, as the guarantors, are jointly and severally liable for the full debt irrespective of the percentage of ownership.

When Can I Remove The Income Guarantee?

The goal is always to remove your parents from the loan as soon as you can.

This usually happens once your income has increased and your loan balance has dropped enough to stand on your own. At that point, you can refinance and release the guarantee.

If your parents are on the title, you may also need to buy out their share, which can trigger stamp duty.

For example, if they own 20% of a $1 million property, you may need to pay stamp duty on that portion when transferring it fully into your name.

Apply For An Income Guarantor Home Loan

Our mortgage brokers specialise in income guarantor home loans and other no-deposit options.

We can assess your situation, explain whether this strategy is likely to suit you, and walk you and your parents through how the process works from start to finish.

To find out if you qualify, call 1300 889 743 or complete our free online assessment form today.