Guarantor Loan Applications
The concept of a guarantor attached to a loan application can be daunting for both the borrower and guarantor but hopefully this articles simplifies some of the concepts and takes away some of the fear for all parties involved.
A loan facility with a guarantor is easiest thought of as another person (people) offering up real estate as additional security for the bank. This might be their own home or an investment property owned by the guarantors. The benefit to the bank in this type of facility is they now hold the borrowers property as a primary security but also take security of the guarantors home as additional support for the loan should the borrower default on the loan facility. Naturally this is very appealing to a lender and makes the loan application a lot less risky to a lender as they have two avenues of recouping their funds should the facility go bad.
So why would a person pursue a guarantee loan? For a borrower having a guarantor can have one or all of the following benefits
1. Less or No deposit required
2. Reduces or eliminates the need for mortgage insurance
3. Since the loan application is now less risky for the lender the proposed lender will often offer lower rates and fee’s to the borrower than if there was no guarantee in place
This part of the lending market is growing fast with most major lenders offering a guarantee facility in some structure, however, there is no doubt some lenders do this better than others and this is where we are able to provide detailed advice on how to proceed with guarantee facilities.
FAQ’s about Guarantee Loan Facilities
1. Does the guarantor need to have paid off their own home?
No, but they need to have sufficient equity to support the amount of the guarantee.
If the guarantor has a loan against their property, does this need to be refinanced?
No, this is where lender selection from your broker becomes all important.
Does the guarantor need to provide documentation to assist with the loan application?
Yes, again lender selection from your broker is all important at this stage as some guarantee facilities are more intrusive on the guarantors than others.
Does having a guarantor mean the borrower can borrow more money?
No, as a general rule the affordability assessment and maximum loan possible are measured against the borrowers only and do not include the guarantors income and expense position.
Are guarantee loans only available for purchases?
No, we have had success using guarantee loans on refinance and debt consolidation loan facilities. Once again lender selection is all important to make sure this happens smoothly.