Guarantor Deposit Loans
What Is a Guarantor Home Loan?
A guarantor home loan from OzBroker is when a family member of the homebuyer uses their property as security for the loan. This is presently the exclusive method to borrow from 100% to 110% of the property’s buying price. To clarify, 80% of the loan is secured on the property being purchased, and the remaining 20% on your parent’s property. Let’s learn more about Guarantor deposit loans and how OzBroker can help you obtain it.
How Much Can Be Borrowed?
The borrowing amount varies based on the type of borrower:
- First-time buyers: 105% of the property value
- Construction: 105% of combined land value and construction costs
- Refinancing: 100% of the property value
- Debt consolidation and purchase: 110% of the property value
- Investors: 105% of the investment property value
Borrowing over $1,000,000 necessitates fulfilling extra credit criteria.
Advantages of a Guarantor Loan with OzBroker:
- No deposit is required, enabling immediate home purchase.
- Avoidance of LMI premium, saving money.
- Some lenders offer reduced interest rates.
- Consolidation of minor debts like credit cards is possible.
- The guarantor’s exposure is minimised by limiting the size of the guarantee.
Available Interest Rates and Lenders:
OzBroker offers competitive rates and has both bank and non-bank lenders available. Reach out to discover more and find out how we can assist you.
Do You Qualify?
OzBroker can assist you in acquiring or refinancing property anywhere in Australia.
How Does a Guarantor Loan Function?
A guarantor, typically your parents, will secure your home loan using their property, helping you enter the property market earlier. Once a part of the loan is repaid or the property value rises, the guarantee can be removed.
Mortgage Structure for the Guarantee:
The loan is safeguarded by the property being purchased and the guarantor’s property. Using a limited guarantee allows the guarantor to reduce their liability to your mortgage.
Limitation of the Guarantee:
Size of the limited guarantee = (Loan Amount – (0.8 * Purchase Price))/0.75.
For example, if you are buying a property for $500,000 and are borrowing $525,000 to cover your expenses such as stamp duty then the calculation would be:
($525,000 loan amount – (0.8 * $500,000 purchase price))/0.75
$125,000/0.75 = A limited guarantee of $166,700 (rounded to the nearest $100)
Types of Guarantees:
- Security Guarantee: A guarantor uses their real estate as additional security.
- Security and Income Guarantee: For those with low income or students, the lender relies on the parent’s income and property as security.
- Family or Parent Guarantee: Direct relatives act as guarantors; other family members are considered on an individual basis.
- Limited Guarantee: Only part of the loan is guaranteed, reducing liability on the guarantor’s property.
OzBroker emphasises the diversity and flexibility of guarantor deposit loans, allowing potential homeowners to navigate the property market with tailored support and security. Whether you’re a first-time buyer or looking to consolidate debt, OzBroker is equipped to guide you through the process, with various types of guarantees to suit individual needs and circumstances.
FAQs About Getting Guarantor Deposit Loans
Absolutely, you can. At OzBroker, we collaborate with several lenders who can allow you to borrow up to 110%, while most lenders usually allow up to 105%.
Yes, some lenders do accept guarantor loans for those buying their second homes. Many lenders expect second-time home buyers to manage without guarantors, but at OzBroker, we know some who are willing, especially helpful for those who might have faced unfortunate circumstances like divorce or illness, which might have forced them to sell their first homes.
Although guarantor loans can cover 100% of the purchase price, having 5% of the price in personal savings is a requirement for many lenders. However, there are also lenders who are flexible about this policy. Here at OzBroker, we can guide you to lenders who are more lenient about having genuine savings.
Absolutely. OzBroker can connect you with several Australian lenders who accept guarantors for investment properties. However, acquiring guarantor loans for multiple investment properties can be challenging due to the elevated risks involved for guarantors.
Ideally, a guarantor shouldn’t be on a mortgage for its entire term. Most borrowers can apply to remove the guarantor usually between 2 to 5 years into the loan, depending on various conditions like regular repayments, property value, and loan value. However, removing the guarantor isn’t an automatic process; you need to apply for it with your bank.
It’s usually fine as long as there is sufficient equity. They can secure a guarantor loan using a second mortgage on their property. However, the lender who has the first mortgage on the guarantor’s property needs to consent to a second mortgage, which can sometimes be a tricky process.
The combined debt – the existing home loan plus the new limited guarantee – should ideally be less than 80% of the property’s value. For instance, if the total secured debt on the guarantor’s property is $200,000, the property’s value should be $267,000 or more for approval. Don’t fret about the calculations; our team at OzBroker can help you with that!
Some Australian lenders might not accept guarantors who are retired or elderly. However, we at OzBroker can direct you to those who can accommodate guarantees from retirees, provided they have received legal advice prior to signing the loan agreement.
I hope these simplified versions maintain the essence of your original content while making it more understandable.
FAQs About Being A Guarantor On A Home Loan
When it comes to guarantor deposit loans, typically, most banks prefer having only the borrower’s parents act as guarantors. However, some lenders at OzBroker might also consider immediate family members such as siblings, grandparents, spouses, partners, or adult children as guarantors.
Never feel forced to become a guarantor.
Becoming a guarantor is a major decision. Therefore, we at OzBroker suggest you get independent financial advice. Ask yourself these questions:
- How big is the limited guarantee? Can you handle the extra costs if things don’t go as planned?
- When would you have to pay? Usually, banks act only when the mortgage payment is late by 90-180 days.
- Do you know the borrower well? It may be hard to answer if it’s your child, but be truthful.
To protect guarantors, the Australian Banking Association introduced a new Banking Code of Practice.
- Guarantors should have at least three days to read the guarantee documents and understand their responsibilities before signing them.
- There will be a cooling-off period after signing the agreement.
- Guarantors should get independent legal advice before signing.
- If the borrower faces financial issues, or there is a change in their situation, the bank will inform the guarantor.
- The bank will first try to recover assets from the borrower before acting against the guarantor. If concerned, seek legal advice.
If the borrower can’t pay, the guarantor has to pay the home loan.
There’s a common fear that banks might rush to sell a guarantor’s home to cover the debt left after default, but usually, banks do everything possible to avoid this last resort.
Selling the guarantor’s home involves considerable process and cost, and breaking even is difficult. So, banks would rather have the borrower continue the payments and resolve any repayment issues.
If your child is having difficulty saving a deposit, and you want to reduce the risks of being a guarantor, consider a parent-assist home loan from OzBroker.
Make this decision before the borrower gets the home loan approved and signs the Sale Contract with OzBroker, or else the borrower might break the contract and face legal action.