Saving for a deposit is time consuming and costly to say the least! Obtaining a 20% deposit is difficult in a rising property market, and can restrict first home buyers. Lending becomes tighter for loans over 80%, and a Lenders Mortgage Insurance Premium is additionally required. When adding on stamp duties, government charges and solicitor fees, things can start to add up quickly!
Guarantor loans can offer a solution to this, allowing you to purchase with a lower deposit required.
So, what is a guarantor loan?
Your guarantor essentially ‘guarantees’ your home loan by using their property as security. That is, the bank holds both your property and your guarantor's property as security. Most commonly, parental guarantees assist in buying first homes. Say you wanted to purchase a property for $500k, but only had $25k cash savings, your parents could guarantee an additional $75k against their property to reduce your lending value to 80% of the purchase price.
What are the benefits?
- Lower deposit required
- Overall loan is 80% or less - so no Lenders Mortgage Insurance is required
- Interest rate may be lower - as rates with some lenders are tiered for loans above 80%
- Some lenders allow you to limit the size of the guarantee
