Having a guarantor will allow you to purchase your property sooner and, could potentially save you thousands of dollars!
Using the equity they’ve built up in existing property, a guarantor can help you buy a home or invest in residential property. The best part is, that they don’t need to actually provide you with any cash.
Using a guarantor is an increasingly popular choice for many home buyers or investors. Because, by using a guarantor, they can avoid paying for Lenders Mortgage Insurance (LMI).
LMI protects lenders from borrowers defaulting on their loan repayments and is payable if you are wishing to purchase with a small deposit.
This is a form of insurance that protects lenders from borrowers defaulting on loan repayments and is payable if you only have a small deposit. Your guarantor provides a guarantee for your home loan which is secured on their property to help you avoid this charge.
With market conditions becoming more difficult for first home buyers, more young couples are turning to their families to help them qualify for their first mortgage. And there are a lot of advantages to doing so.
Having a guarantor means you don’t need to save as big a deposit. Another bonus – because you can borrow more, you may be able to buy a larger property than you originally planned.
As previously mentioned, you can also avoid having to pay Lenders Mortgage Insurance (LMI). Which could add a sizeable chunk to the cost of securing a home loan.
A further advantage is that some lenders will allow you to consolidate some minor debts into your new mortgage. Including, personal loans and credit cards, provided they make up no more than 5-10 percent of the purchase price.
And finally, a security guarantee is flexible enough that a guarantor can choose a limited amount of liability. They can also be released from the loan at a mutually agreed time. This means the borrower doesn’t have to feel obliged to their guarantor for any longer than necessary.
The main drawback of using a guarantor is that you are putting their property at risk. Typically, that risk is minimal, given that you should be well equipped to pay off the loan and only need some help with the deposit. However, the risk is there nonetheless.
You could get sick or lose your job tomorrow, then, the lender would turn to your guarantor for loan repayments.
It is for this reason that anyone considering going guarantor for someone should seek legal advice before doing so.
It is a major financial decision and should not be entered into lightly. A solicitor can explain your legal rights and obligations and advise on the most prudent way forward.
Buying your first home or investment property is a huge financial decision but you don’t need to go it alone.
Please get in touch with one of our award-winning real estate agents to discuss your plans moving forward. We’d love to help.
Call Loan Market Advisor, Sanjeev Jangra today.
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