How a Guarantor Can Help You Secure a Home Loan
What is a Guarantor Home Loan?
A guarantor home loan allows a family member to offer their property as security for your loan. This support can help you avoid lenders mortgage insurance (LMI) and potentially borrow up to 110% of the property’s value.
Benefits of Guarantor Loans
• Enter the Property Market Sooner: No need to save a large deposit.
• Save on LMI: Avoid paying lenders mortgage insurance.
• Faster Loan Approval: Skipping LMI scrutiny speeds up the process.
• Potentially Discounted Interest Rates: Some lenders offer lower rates.
• Debt Consolidation: Combine minor debts, like credit cards, with your home loan.
• Limit Guarantor’s Exposure: Minimise the financial risk for your guarantor.
Who Can Be a Guarantor?
Parents / Stepparents, grandparents, siblings, uncles and aunts, spouses, children, friends
Types of Guarantor Loans
Service Guarantees
A family member guarantees all repayments and is named on the property title. This may affect eligibility for government grants and could require income protection insurance.
Security Guarantees
The guarantor covers 20% of the property value, helping you avoid LMI. This is common among first-home buyers.
Requirements for a Guarantor
The guarantor provides a property as security, typically covering 20-25% of the purchase price. This can be less if the applicant also provides a partial deposit. If the guarantor has an existing loan on their property, they can still be eligible if there is enough equity.
Removing the Guarantee
A guarantee can be removed when: The property has enough equity, the applicant is willing to pay LMI if the LVR is above 80%,
the property is sold, the loan is paid down. Removing a guarantor is generally straightforward and involves a simple release form
Maximum Loan-to-Value Ratio (LVR)
The maximum LVR for a guarantor home loan is 110%, which allows you to cover additional costs like stamp duty and legal fees.
Borrowing Limits with a Guarantor Loan
First-home buyers: Up to 105% of the property value.
Construction: Up to 105% of the total land value and construction cost.
Refinancing: Up to 100% of the property value.
Debt Consolidation and Purchase: Up to 110% of the property value.
Investors: Up to 105% of the investment property value.
Guarantor home loans offer a practical solution for first-home buyers and others looking to enter the property market with family support. By leveraging a guarantor, you can secure a home loan sooner, save on LMI, and potentially enjoy better loan terms.