Why Having a Guarantor Can Help You Obtain Financing

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If you have been struggling to obtain finance, a guarantor may be the short cut you’ve been looking for.

Obtaining a home loan can be hard if you don’t have a massive amount of money to lay down as the deposit. Thankfully, there are still some pathways to obtaining credit, which are known as family pledges. The two types available are service guarantees and security guarantees.

While less common than security guarantees, service guarantees can still be beneficial for many people. This process involves a family member guaranteeing all your loan repayments and having their name on the property title. However, if opting for this option, bear in mind that first home buyers will often not be entitled to government grants.

This drawback makes security guarantees the more popular option. Again, borrowers with not enough for a deposit often opt for this approach. A relative or friend will use the equity in their own home to guarantee the deposit of the borrower.

As an example, if you wanted to loan $600,000, your guarantor may take up to 80% of the value in their own name, meaning $480,000. The remaining balance is then $120,000, which is guaranteed in the names of the guarantor/s and borrower/s, providing security to the lender while limiting the liability of the guarantor. This eliminates the need for mortgage insurance, as so much protection is provided already.

The benefits of security guarantees, and to a lesser extent, service guarantees, makes them ideal for first home buyers who are struggling to enter the property market with their minimal deposit amounts. Parents who own their own home and are comfortable in their child’s ability to pay back the loan should consider becoming a guarantor to assist their child in joining the property market.

To discover a smoother pathway to home ownership, speak to an expert from Financial Brokers Australia.

 

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