What is a guarantor?
Buying your first home can be a big financial challenge. Many lenders allow a family member to help you to buy your own home by providing additional security. The person providing this assistance is known as a guarantor. A guarantor can help you secure a home loan by offering their own property as security for the loan. Home loan guarantors are generally limited to immediate family members such as parents and spouses. Although some lenders may also allow siblings, parents-in-law, step-parents, grandparents and even aunts and uncles to act as guarantor for you.
Why use a guarantor?
Guarantors can help you secure a home loan if you’re unable to save enough for a deposit. They can prove to a lender you can otherwise make the required repayments.
Guarantor loans have several benefits for you as the borrower:
- You don’t need a deposit, allowing you to buy a home now.
- Borrower do not have to pay Mortgage Insurance.
- You can consolidate some minor debts, such as credit cards, when you buy your home.
- You can limit the size of the guarantee.
How does it work?
Your guarantor will provide a guarantee for your home loan which is secured on their property. A guarantor allows the equity in his or her own property to be used as additional security for your loan. The primary security for the loan will be your property. The lender will also take a mortgage over your guarantor’s property. This mortgage will not support the loan directly but will be used to support a guarantee from your guarantor.
As a result Guarantor loans have become very popular in recent years. They cost less than standard home loans, they allow you to buy without a deposit and some lenders now allow you to limit the size of the guarantee.
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