Income Guarantee Home Loan
Can your parents help pay your home loan?
Looking to get into the property market but have no deposit? A guarantor loan is currently the only option available to borrow 100% of the property value plus the costs of completing the purchase.
However, a security guarantee alone doesn’t solve the problem if your income isn’t quite strong enough to afford the amount that you’re borrowing.
Yes, the bank’s borrowing power or serviceability test still applies but an income guarantee home loan can help you to get around it.
How does it work?
- The amount you’re borrowing will need to be partly secured by your parents home.
- Most lenders require your parents to be part owners in your home.
- Your parents need to provide an income guarantee.
While 80% of the property value will be secured against the property that you’re buying, the remaining 20% plus the costs of completing the purchase (typically 5% and relating to such costs as stamp duty, legal fees and mortgage transfer fees) will be secured against equity by your parents’ property.
You can read more about this on the guarantor loan page.
Your parents will need to complete a signed declaration stating that they will help you with your repayments should you be unable to do so.
Call us on 1300 889 743 or fill in our online enquiry form and we can let you know if you qualify for an income guarantee home loan and whether it’s the right no deposit solution for you.
How much can I borrow?
You can borrow up to 105% of the property value which includes the purchase price plus the costs of the 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 to the lower interest rate that applies to your home loan. It can can be a great way to move faster towards removing the guarantee and, ultimately, financial independence.
How do my parents qualify?
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.
Is an income guarantee home loan right for my parents?
We regularly get customer enquiries from parents who are close to retirement and want to buy a home for their son or daughter.
They have a good income and want to help with repayments, particularly if their son or daughter isn’t earning quite enough to afford the amount they’re looking to borrow for a mortgage.
Like a standard guarantor loan, the purpose of a servicing guarantor loan is for you to get your foot into the property market and then pay down the loan to eventually remove the guarantee.
Simply fill in our free online enquiry form, tell us about your situation and we’d be happy to sit down with you and your parents to explain the whole process.
When can I remove the guarantee?
Later, when your income is stronger, you can buy your parents out.
Keep in mind that you’ll have to pay stamp duty on the portion that you pay out.
For example, if you bought a $1 million property in NSW and your parents were providing a 20% income guarantee, you’d pay stamp duty on $200,000. That works out to be around $5,500.
If the property grew in value by 10% over that time then you’d have to pay stamp duty on $220,000.
What if my parents are over 55?
Banks can be very conservative when it comes to over 55s because they’re nearing retirement age.
That means they may soon be in a position where they can no longer afford to make repayments on your home loan depending on the loan amount.
If your parents are at retirement age, our mortgage brokers can usually mitigate or address this risk by providing the lender with an exit strategy.
It could be that your parents will continue to work full time past retirement or they plan to downsize their property and they will have additional income from the sale.
What about spousal income home loan?
However, if your partner is a stay-at-home parent or they earn a significantly lower income than you than their borrowing power alone may not be enough to qualify for the amount you want to borrow.
Fortunately, there are some lenders that will allow you to borrow in your spouse’s name but take into account both of your incomes.
Essentially, this is another form of an income guarantee home loan.
Do you need an income guarantor home loan?
Our mortgage brokers are specialists in income guarantee home loans and other no deposit solutions.
Discover if you qualify by calling 1300 889 743 or by filling in our free assessment form today.