In a guarantor home loan, a person guarantees, or provides security for, a home loan for someone else. If the borrower defaults or cannot make repayments, the guarantor is responsible for paying the loan amount. With a guarantor loan, you can borrow 105% of the purchase price of a property with no deposit.
Who Can Be A Guarantor?
The primary requirement for getting approval on guarantor home loans is that the guarantor has to have a strong relationship with the buyer. This generally means immediate family.
Most banks will only allow as a guarantor:
- Your parents or your co-borrower’s mum and dad
- Your adult children
- Your spouse (this is commonly done to protect assets)
- De facto partners
The following family members can also be acceptable, as exceptions to standard policy:
- Step-parents and legal guardians
- Children or stepchildren
The following family members are typically unacceptable but can sometimes be allowed, depending on their relationship with you:
- Uncle and aunt
- Other relatives, such as cousins
How Can An Uncle Or An Aunt Be A Guarantor?
An uncle or aunt may sometimes be approved as a guarantor on your mortgage, depending on their relationship with the borrower. Such approvals usually result when:
- The borrower was brought up by their uncle or aunt
- The borrower has lived with his or her uncle or aunt for a prolonged period
- The uncle or aunt has an excellent credit history
- The uncle or aunt can provide a witnessed statutory declaration confirming their close relationship with you.
Please call us on 1300 889 743 or complete our free assessment form to discover how we can help you qualify for a guarantor loan.
Who Cannot Be A Guarantor?
The guarantor needs to have a strong relationship with you so, generally speaking, the following people are not acceptable:
- Friends, unless a term deposit is used as security
- Work colleagues
- Former de facto partners or spouses
- Anyone else who doesn’t have an immediate relationship with you
- Anyone who has a bad credit history
If you want someone other than your parents to be your guarantor on your home loan, specialist lenders can help, for a premium.
What is the eligibility requirement to be a guarantor?
To be a guarantor for a home loan, a person must be above 18 but below 65 years old (as few lenders accept older people and retirees as guarantors).
The guarantor’s property must be in Australia. Banks won’t accept a property located overseas as security for your home loan. Also, your guarantor typically needs to be a citizen of Australia or New Zealand. However, some lenders will accept guarantors who are living and working overseas..
Your guarantor needs to be of sound mind and will need to seek both legal and financial advice before making the decision to act as a mortgage guarantor. There are many risks and responsibilities associated with being a guarantor.
The guarantor must either own their property outright or owe less than 80% of the property’s value on their mortgage.There’s no hard and fast rule with this but be aware that the less equity your guarantor has, the harder it will be to borrow 100% of the property value plus costs on your home loan to avoid paying a deposit and having to show genuine savings.
A guarantor doesn’t have to be working. The policy varies among lenders. Most Australian banks will not accept a security guarantee from a retired or elderly guarantor. But remember, not all lenders are the same. Your guarantor can be a self-funded retiree, or even on the pension (if they’re over 65 years of age), as long as they obtain legal advice prior to signing the loan offer and present a solid exit strategy to the lender.
- Pensioner – some lenders accept them
- Self-funded retirees using home – acceptable to more lenders
- Self-funded retiree using an investment property as security – acceptable to almost everyone
- Still working – acceptable to everyone who does guarantor loans
For immediate family, it comes down to the nature of their relationship with you. It’s common for people to have been raised by their grandparents or uncle and aunt, particularly in Asian families. If your family member can provide a witnessed statutory declaration confirming their close relationship with you, this can strengthen your case for a home loan from the lender.
What If My Guarantor Doesn’t Qualify?
In some cases, your mum and dad won’t be able to act as guarantors on your mortgage because they don’t have enough equity in their property or they’re close to retirement.
Other times, parents may simply not be comfortable acting as a guarantor. But don’t worry. If you don’t have a deposit, one of these options could be for you:
- Opting for a no deposit loan
- Using a personal loan
- Asking your parents for a non-refundable gifted deposit(so you can avoid LMI)
- Co-signing on a home loan with your parents (this wouldn’t require them to put up their house as a security)
- Buying a property with a friend under a co-borrower or co-ownership investment loan
In this way, you can get into the property market sooner and you can reap the rewards of property ownership.
Get Legal Advice From A Professional
Taking out a home loan with a guarantor is a crucial decision and comes with much responsibility. Whether you are checking to see if you can be a guarantor or want to know if someone is eligible to be a guarantor for you, we recommend that you seek advice on guarantor loan requirements from both legal and financial professionals before deciding to proceed.
Our mortgage brokers specialise in handling guarantor loans. You can call us on 1300 889 743 or complete our free online assessment form to find out how we can help you.