Guarantor Changes to Help First Home Buyers
Recent changes by some lenders to Guarantor requirements for home loans should provide some much needed help to many first home buyers who are unable to save sufficient funds for a deposit, according to leading mortgage broker Loan Market. Loan Market Melbourne broker Alexander Heifetz said Family and Security Guarantee Loans were available to help first home buyers and families entering the residential real estate market who needed an additional asset to secure their property. Mr Heifetz said some lenders recently amended their policies removing certain restrictions for Guarantors to included extended family members. The changes now mean a Guarantor will no longer have to be a parent, sibling or spouse of the borrower for a Security Guarantee, which was formerly know as a Family Guarantee. “This change in policy is going to help certain first home buyers with healthy incomes but limited savings enter the property market with help from Guarantees who traditionally haven’t been allowed to put their support behind a low-deposit holder’s mortgage,” Mr Heifetz said. “Most Guarantee loans are a single loan secured by both properties: the property purchased by the first home buyer and guarantors' property. The benefit of this option is that there is no requirement to make a Lenders Mortgage Insurance (LMI) payment and that you don’t have to demonstrate that a deposit you have was genuinely saved,” Mr Heifetz said. Although these types of products are becoming increasingly popular, Mr Heifetz suggested that borrowers and guarantors considered the following before signing a Security or Family Guarantee.
Advice for Borrowers:
- Think carefully about the implications of borrowing against a security provided by your family member or friend.
- Talk to a professional who can find and recommend the right loan product that is suitable for you situation.
- Consider any alternatives, such as purchasing a less expensive property.
- Always seek professional financial and legal advice before signing any documents.
- Be aware that you will be legally responsible for paying back the entire loan if borrower fails to make repayments.
- Look at other options such as gifting additional money or taking out a small loan.