Rising Tide Blog

Buying the first property is always the hardest

Posted by Matt Hale

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Buying your first property is always the hardest…

Whether you are trying to buy a home or an investment, buying your first property is always the hardest. After rent, bills, food and lifestyle there isn’t always a lot left to save towards your deposit. There is an option available that many don’t know about, which is helping first time buyers get into the market sooner and cheaper. It’s a thing called a Guarantee.

Many people are familiar with the term but don’t actually know how it works. There are different types of Guarantees and various lenders have their own policies.

This is an example of how a Guarantee could work:

You want to purchase a property for $500,000 and there is an extra $30,000 of costs for things like Stamp duty, insurances and bank fees. So you need to raise $530,000 in total to purchase that property. Let’s assume you have managed to save $20,000 which is great, but not quite enough to cover the minimum 5% deposit plus costs.

This is when the Guarantor steps in. You need to borrow $510,000 which is the total required minus your $20,000 contribution. Most banks will lend up to 80% ($400,000) secured against the property you purchase. The extra $110,000 will have to be secured against the property that the Guarantor has offered as security.

Even if you don’t have any savings to put towards the property, you can potentially borrow the whole $530,000 by increasing the loan that is secured against the Guarantor property. You will also avoid paying Lenders Mortgage Insurance as the exposure to the bank is 80% or less against the two properties.

Normally a Guarantor is a parent but can actually be anyone as long as they are in the position to do so.

Rising Tide offers this and other financial advice, so if you want to know more about how you can get in to you first property sooner, call our office and speak to our Lending Manager Sam on 03 370 330 287