Guarantor Lending: A Lower Risk Than You Realise
Our Loan Market South East & Peninsula office are specialists in guarantor lending - an area which often misunderstood, particularly by first home owners or investors. Guarantor lending is one way that clients who don’t have enough savings or don’t fit the banks requirements can get the finance they need to buy their property.
Guarantor lending is when someone (generally parents) acts as a guarantor and put up either cash or equity in property to sit behind your loan, to reduce the risk for the bank. The guarantor has to meet a particular criteria set by the lenders, but if suitable the process is straightforward.
The conversation we have goes beyond just being with our client and their initial loan requirements. We also involve the guarantor and have a conversation around the risk of guarantor lending, then how to remove the guarantor in the future once they’re not required anymore. This puts many guarantors at ease that it won’t be a long-term risk on their behalf.
There once was a time where a guarantor was exposed to the complete debt of the client, however this isn’t the case anymore. The exposure to the guarantor is whatever the client borrows above 80% of the house they’re buying – for example, a $300,000 house with a $290,000 loan boils down to 80% of $300,000 being $240,000, then the guarantor exposure is $290,000 less $240,000, equalling $50,000. Exposure of $50,000 is far less risky than exposure of the whole $290,000, making it a far more attractive option for some borrowers.
Our team are experts in guarantor lending and can advise the scenario that might suit you best from our panel of lenders. Every home loan situation is different so it’s best to contact us to make an appointment to discuss yours.