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You’ve probably heard about ‘guarantors’ in relation to buying a property – but what does this term actually mean?
If this is your first foray into purchasing a property, my colleagues Sam Gawenda & Matt Hale have penned a few pieces that will be helpful for you to read;
- Buying a property
- 3 ways parents can help their kids buy a house
- Now that you are pre-approved, what’s next?
Now, back to guarantors. When it comes to understanding this topic, the Commonwealth Bank has a fantastic fact sheet that I highly recommend having a look at first. Secondly, a key thing to know is that the guarantor option is certainly not the best fit for everyone. However, for many people it’s worth exploring.
We also recommend having a deep discussion with your mortgage broker, financial planner & getting legal advice before taking action in this area. In fact, some lenders even require the guarantors seek legal advice before they will settle on a guaranteed loan.
These are the scenarios that most often bring the guarantor option into the landscape;
Low funds for deposit: If mortgage insurance (often called LMI – lenders mortgage insurance) or cash gift options aren’t available, then a client can lean on a family member – usually their parents – to offer their property as additional security for the client’s loan.
Low borrowing capacity: If you’re buying a property (particularly for investment) and don’t have enough borrowing capacity, we can explore the option of your de facto / spouse coming on board as a guarantor to service the loan.
Some additional points – as a guarantor;
- The loan will not show up on your credit file, as the debt is not in your name
- You are not liable to make loan repayments, as long as the actual borrower does
- The equity you have used to guarantee someone else’s purchase, cannot be accessed by you until the guarantee is removed
- The guarantor and guarantee property can be removed via refinance once the guaranteed loan has been paid down or property equity has increased – it’s recommended to review your loan for this option in 2 years.
If this has sparked some interest for you, please reach out via firstname.lastname@example.org and I’ll be happy to assist you further.