Purchasers and how a guarantor can help out
Acceptable guarantors can make all the difference in obtaining finance. They are especially useful for first home buyers looking to avoid Lenders Mortgage Insurance (LMI) or for borrowers looking to access more loan options than what their deposit would otherwise give them.
Guarantors must be made completely aware of their obligations and offer tangible security (usually real estate) to have any significant impact on a loan decision.
That being said, there are now two forms of guarantee – :
- the traditional guarantee where the guarantor is liable for the full cost of the loan and by extension risking the sale of their own home in the process
- A family guarantee where the guarantor is only liable for the guarantee up to a fixed amount. An example of this is where you may be looking to buy a $800000 property and have raised $80000 for the deposit. A guarantor can offer a guarantee for a further $80000 – bringing your security deposit level to the accepted 20%. This means that the guarantor is only liable for the agreed sum and you have raised the 20% security necessary to avoid LMI.
A further attraction of this type of guarantee is that when you have 20% equity in your property, the guarantor can be released from their obligation.
Guarantees can help by
- Giving you greater leverage in bargaining interest rates and accessing loan options.
- Helping you overcome obstacles to loan eligibility such as length of employment
- Giving you greater borrowing capacity.
If the possibilities of using guarantors interests you, feel free to contact Australian Finance Hub to explore the possibilities,