Perhaps a Guarantor can help in this situation.
So, what does a Guarantor do, and who can be a Guarantor on a home loan?
Guarantors are precisely what the name implies. Basically, they can do 2 things;
- Pledge or guarantee repayments on a loan, so if anything falls behind, the guarantor will pick up the loan and be responsible financially.
- Pledge some or all of the equity (Property value less any Mortgage) they have in their property. A pledge of this type often doesn’t require the Guarantor to prove earnings to cover the new loan but the young borrowers have to prove their ability to service both new loans.
Given that a home loan is usually a substantial amount, you will find that it is most commonly a family member or close relative that is willing to step up and take the guarantee. The most popular option is having a parent (or parents) using the equity in their home to give the lender sufficient asset values so that the loan funds don’t exceed 80% of the combined values of the 2 properties.
First Home Buyers Trend
Many first home buyers enter the property market this way, especially when it has become very challenging to save a substantial deposit in the current financial market. This provides a boost and an opportunity for a head start, especially for young families or couples who can now be one step closer to owning their dream home.
How does it work?
Let’s look at an example:
A family is looking at a total loan amount of $650,000 to purchase their dream home. However, they are unable to save up for a 20% deposit.
In this case, the guarantor will provide security for the lender by backing up and guaranteeing the amount of $130,000, which would have been the deposit, to avoid mortgage insurance and be on track to take out the rest of the loan.
This means that the rest of the loan of 80%, or $520,000, will be borrowed under their names. Whereas the would-be deposit amount is being guaranteed in both names of the borrowers and the guarantor’s.
Are you planning to buy your own home? While this is an exciting journey, before you start, it is important to determine how much you can borrow, even with the help of a Guarantor. This is where you should engage a professional finance broker who can help you prepare an accurate budget taking into account all purchasing expenses and living expenses.
A mortgage is a big commitment over the long term, and here at OzLoans Finance, our expert team can assist you in getting started on the right foot. We maintain differing relationships with various funding sources to suit your needs and provide you with the best possible support service.
Get in touch to find out more today.