Purchasing a home is a significant milestone in one’s life, but high property prices and strict lending criteria can make it challenging for some Australians to enter the property market. However, with the assistance of Guarantor Home Loans, aspiring homeowners can overcome these hurdles and achieve their dream of owning a home. In this blog, we will explore the concept of Guarantor Home Loans, the application process, and the myriad of benefits they offer to both borrowers and guarantors. As the leading Home Loan lender in Australia with over 26 years of experience, emoney Home Loans is proud to partner with powerful banks and lenders, making homeownership accessible to more Australians.
What is a Guarantor Home Loan?
A Guarantor Home Loan is a type of mortgage that allows first-time buyers or borrowers with limited funds or credit history to secure a home loan with the help of a guarantor. A guarantor is typically a close family member, like a parent or sibling, who offers their property or other assets as security for the borrower’s loan. This added security provides lenders with peace of mind, enabling them to lend larger amounts or approve loans with lower deposits.
Benefits to the Borrower:
1. Lower or No Deposit Required:
One of the most significant benefits of a Guarantor Home Loan is the reduced deposit requirement. Aspiring homeowners can avoid the burden of saving for a substantial deposit, as the guarantor’s property or assets act as collateral, often eliminating the need for a deposit altogether. This allows borrowers to enter the property market sooner and take advantage of potentially rising property values.
2. Increased Borrowing Capacity:
With a guarantor backing the loan, lenders are more willing to extend larger loan amounts, as they have the additional security of the guarantor’s assets. This increased borrowing capacity opens up more opportunities for borrowers to choose their dream home, rather than settling for a more affordable, yet less desirable property.
3. Avoiding Lenders Mortgage Insurance (LMI):
In traditional home loans with smaller deposits, borrowers are usually required to pay Lenders Mortgage Insurance (LMI) to protect the lender in case of default. However, with a Guarantor Home Loan, the risk to the lender is reduced due to the guarantor’s involvement, allowing borrowers to avoid costly LMI payments.
4. Building Equity and Credit History:
By entering the property market earlier, borrowers can start building equity in their property, potentially benefiting from capital growth over time. Moreover, consistent and timely repayments on the home loan can contribute positively to the borrower’s credit history, enhancing their financial profile for future transactions.
5. Flexible Repayment Options:
Guarantor Home Loans generally offer flexible repayment options tailored to the borrower’s financial situation. This may include variable or fixed interest rates, principal and interest, or interest-only repayment terms, providing borrowers with more control over their mortgage and finances.
Benefits to the Guarantor:
1. Limited Risk and Liability:
Although a guarantor provides security for the borrower’s loan, their liability is generally limited to the guaranteed amount. In most cases, the guarantor’s responsibility is restricted to the specified portion of the loan or until the borrower establishes sufficient equity in the property.
2. Protection of Existing Assets:
Contrary to common misconceptions, a guarantor’s property or assets are not automatically at risk with a Guarantor Home Loan. As long as the borrower meets their repayment obligations, the guarantor’s assets remain secure.
3. Early Release of Guarantor Obligation:
As the borrower pays down their loan or the property appreciates in value, the loan-to-value ratio (LVR) decreases, reducing the guarantor’s risk. Many lenders offer the option to release the guarantor from their obligation once the LVR reaches a predetermined threshold, further safeguarding their interests.
4. Helping Loved Ones Achieve Homeownership:
Being a guarantor allows family members to actively support their loved ones in achieving their dream of homeownership. This act of generosity and support can foster stronger family bonds and provide peace of mind to both parties.
Applying for a Guarantor Home Loan:
Applying for a Guarantor Home Loan with emoney Home Loans is a straightforward process designed to ensure a smooth and efficient experience for both the borrower and guarantor. Here are the steps involved:
1. Initial Consultation:
The first step is to have an initial consultation with emoney Home Loans. During this meeting, the borrower and guarantor will receive valuable information about the loan product, the terms and conditions, and their respective roles and responsibilities.
2. Eligibility Assessment:
emoney Home Loans will conduct a comprehensive eligibility assessment for the borrower and guarantor. This includes a review of income, credit history, and the value of the guarantor’s property or assets.
3. Loan Application:
Once the borrower and guarantor are deemed eligible, the formal loan application process commences. The borrower will submit the necessary documentation, including proof of income, identification, and other financial details.
4. Valuation and Approval:
emoney Home Loans will assess the value of the property being purchased and perform a thorough risk assessment based on the information provided. Upon successful evaluation, the loan will be approved.
5. Legal Advice and Documentation:
Both the borrower and guarantor will receive legal advice and will be required to sign the necessary loan documentation. This ensures that all parties fully understand their obligations and rights.
6. Settlement and Loan Disbursement:
After the legal documentation is in place, the settlement process begins. The loan amount will be disbursed to the seller or the borrower, and homeownership becomes a reality.
Guarantor Home Loans are an invaluable tool that empowers aspiring homeowners to enter the property market with ease and confidence. With lower deposit requirements, increased borrowing capacity, and the potential to avoid Lenders Mortgage Insurance, borrowers can achieve their homeownership dreams sooner. For guarantors, this arrangement offers limited risk and liability, enabling them to actively support their loved ones in this significant life milestone. As the leading Home Loan lender in Australia, emoney Home Loans takes pride in helping Australians unlock the door to homeownership through Guarantor Home Loans, backed by our extensive experience and strong partnerships with powerful banks and lenders.
Disclaimer: Please note that the information provided in this article is for informational purposes only and should not be considered as financial advice. Every individual’s financial circumstances are unique, and it’s crucial to seek personalised advice from professionals before making any investment decisions.
First Home Buyer's Guide
Enter your email address for instant access to our handy First Home Buyer's ebook.
Construction Loan Guide
Building a new home. Find out about the construction loan process.