Guarantor Home Loan
A Guarantor Home Loan or Guarantor loans is a great product used for helping adult children into the housing market with little or no deposit. Another advantage of family pledge loan is that the borrower will also not have to pay mortgage insurance, which can be a huge saving. In some cases the borrower will be able to borrow 105% of the purchase price. That will allow for purchase costs such as stamp duty. Family guarantee home loan. Children have parental guarantee home loan.
How a Guarantor Home Loan Works?
Lets presume that Maria & her partner would like to buy a property for $1,000,000 and they have little or no savings at all. Maria’s parents really want to help her get into the property market. But they do not have the cash to gift Maria. But they do have their family home which has some equity.
To avoid mortgage insurance Maria would need her parents to pledge $240,000 to cover the 20% deposit plus $40,000 in stamp duty. Maria’s parents home is worth $1,200,000 and they have an outstanding loan of $600,000, which leaves $600,000 of equity. The incoming lender will take Maria’s new home as security for the loan, but since the value of the property is $1,000,000 and the loan needed to finalise the purchase is $1,040,000 (including stamp duty), the lender will take a limited guarantee of $240,000 against Maria’s parents home as additional security.
Our suggestion in most cases is to set up two loan splits, which in this case would be an $800,000 loan and a $240,000 loan. We encourage Maria, so focus all of her extra repayments into the $240,000 loan split, so as this loan balance decrease and/or the home value increases, Maria would eventually be in a position to remove her parents as guarantor.
We have many lenders on our panel that offer a Guarantor Home Loan, and they all vary in regards to what they will and will not allow, so its extremely important that you talk to Premium Mortgage Brokers as we are the experts in Guarantor Home Loans.