The good news is there’s a way to get into the property market that doesn’t involve years of saving for a deposit. Now that no deposit home loans are off the market, a guarantor home loan can be the solution you’re looking for to buying a home without a deposit.
As part of a guarantor home loan, someone close to you, usually your parent, provides a guarantee for your home loan. Your home loan is secured using the equity in their property.
Most banks require your guarantor to be your parent, although other close family members such as grandparents or siblings can be considered on a case-by-case basis. A guarantor must either own their own home, or have enough equity in their property to provide security for your loan.
Most guarantor home loans are for first home buyers who need some help to enter the property market. Sometimes first home buyers find it difficult to save a deposit because of other expenses such as rent, personal loans and credit cards. If buying a particular property means moving quickly on the financing, a guarantor loan can be the answer.
The guarantor loan is secured both by the property that you are buying and the property owned by the guarantor.
Case study: Sarah and Mark
Sarah and Mark want to buy their first home, but they don’t have a deposit. A small house comes up for sale in their favourite suburb that looks like the perfect buy for them and their small family. It's a bargain at $250,000. They ask Sarah’s parents if they will ‘go guarantor’ for them. Sarah’s parents agree and they go to the bank together.
The bank assesses Mark and Sarah’s income, the value of the house they want to buy, and how much Sarah’s parents owe on their own mortgage. Sarah’s parents have 50% equity in a house that is worth $600,000 – this means they have paid off $300,000 of their mortgage.
Sarah and Mark pay their mortgage payments regularly, plus house prices rise in their area, increasing their equity. In three years, Mark and Sarah have more than 20% equity in their property and arrange for the guarantor to be released from the mortgage.
Case study: Lee and Lyndal
Lee and Lyndal have saved up to buy their first home. When they find an apartment in their price range at $750,000, they’re excited to make an offer. They have steady incomes, the repayments fit their budget, and they think their 15% deposit will make the bank happy.
As first timers, they didn't consider the other expenses in getting a mortgage, like Lender’s Mortgage Insurance (LMI). Because they have less than a 20% deposit, they’re liable to pay thousands more for LMI.
Lee’s parents own their own home outright and offer to be guarantors on the loan. They approach the bank together. The bank grants a guarantor loan to Lee and Lyndal, using Lee’s parent’s home as security. Having a guarantor on their loan means they don’t need to pay LMI, saving them thousands of dollars.
A limited guarantee limits the liability of the guarantor to a portion of the loan rather than being responsible for the entire amount. There’s a complicated formula to figure out the limited amount, but it ends up being around 20% of the property value. Use our handy home loan calculator to figure out how much your guarantor will be liable for.
A guarantor home loan may be the perfect solution to your home loan problem. Contact QBANK or call us on 13 77 28.
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