105 per cent of the property value for: first home buyers loan, construction loan and investment loan
100 per cent of the property value for: refinance home loan
110 per cent of the property value for: debt consolidation and purchase.
Benefits of using guarantors:
With guarantor home loan, you can borrow more than 80 per cent of the property value without paying LMI.
You can also borrow funds to purchase another property along with consolidate small debts, such as credit cards, as long as the LVR is less than 110 per cent of the purchase price.
No deposit is required.
Types of guarantees:
Security guarantee: This is when the guarantor uses their real estate property as an additional security. If the guarantor already had a mortgage over the property, the proposed home loan is considered as a second mortgage. This type of loan is a good option for first home buyers who have good income but not much deposit.
Limited guarantee: This is where only a part of the loan is secured by the guarantors’ property. This helps to reduce the potential liability on the guarantors’ property.
How to apply for guarantor home loan
Guarantor home loan is more complicated than the other types of home loan. Therefore, before you apply for a guarantor home loan, you would need to know all the benefits and risks associated with the loan.
Getting approval: Different lenders have different policy with guarantor home loan. In order to minimize the chance of getting loan declined, you must put your home loan application to the right lender. Otherwise, you would be wasting your time and your credit file will be damaged.
Understand the term and condition: Not all lenders have the same term and condition. Some lenders offer the limit amount of guarantee where as some lenders do not have this offer. If you do not understand the term and condition, your parents’ property will be put at higher risk.
Exit strategy: Although you apply for 30 years home loan but your parents are not required to be guarantors for that long. You may consider making extra repayment to reduce your home loan limit or refinance to remove the guarantors after 2 to 5 years.
Common requirements for guarantor loan
Because of the additional security, guarantor mortgage is normally considered as lower risk. However, there is some situation that is normally not accepted by the banks.
Debts consolidation: Not many lenders allow you to purchase a property and consolidate your current debts at the same time. However, there are some lenders can roll over your loan as long as the sum of your current debts is less than 5 per cent of your property value and you have been making repayments on time.
Purchasing second home: Not many lenders will allow you to do guarantor home loan when you are seeking to purchase your second home. As per their opinion, your asset and financial position should be strong enough to purchase the second home.
Investment loan: Not many lenders allow you to purchase your second or third investment home, which are supported by guarantors.
Mortgage on the guarantors’ property: There are many lenders that will not take second mortgage for the guarantors’ property. However, if there is sufficient equity on the property, some lenders still can take it into consideration.
Genuine savings: Although you are allowed to borrow more than 100 per cent of the purchase price when you have guarantors. However, some lenders still require you to show evidence of 5 per cent genuine savings.
Elderly guarantors: If the guarantors are too old or already retired, most lenders will not accept the guarantors’ security. However, if you are in a strong financial position, some lenders are flexible enough to take property of pensioners or retirees.
Who can be guarantors?
Most lenders can only accept the parents to be the guarantors. However, some lenders can also consider the strong relationships such as siblings, grandparents and spouse.
The guarantors are not always required to be liable for the entire loan amount. They can choose to limit the guarantee amount. This means that if you are in the event of defaults, the guarantors are only required to repay a certain amount, not the entire balance.
If the guarantors are still having mortgage over the property, the sum of current balance owing plus the guarantee amount must be less than 80 per cent of the guarantors’ property value.
The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances. Terms, conditions, fees and charges may apply. Normal lending criteria apply. Rates subject to change. Approved applicants only.