Guarantor home loan (also known as Family potential Finance) is popular amongst first home buyers. You may require a guarantor if you are looking at applying for a home loan and the lender/credit provider is concerned about the following factors:
1. You may not have saved the necessary 20% place to buy your dream home
2. Your limited credit history, or
3. Your low-income
Definition of a Guarantor
A guarantor is best-defined as being a third-party (a family member or a best friend) who promises to provide payment on a loan or any other liability in the event of default.
By having a guarantor, you may be able to buy your dream home easily. Other benefits of having a guarantor can be:
>> Some lenders/credit providers will allow you to borrow 100% of the buy price plus 5% costs of your first home or investment character without the need for proof of savings
>> You will save on the Lenders Mortgage Insurance (LMI) premium
The Impacts of being a Guarantor
Like many people, you may believe that your responsibility to being a guarantor is limited only to ensuring that your family member or best friend pays the debt on time. However, as a guarantor you are not only bound to pay the loan amount if the borrower defaults, but the transaction can have a negative impact on your credit score rating.
Have you been asked to be a Guarantor for a Loan?
If you have been asked to be a guarantor for a loan to sustain a family member or best friend, do not take tension. Before, you feel weighed down by the obligation to become a guarantor, you should consider what you will get out of the arrangement given that you will be responsible for repaying the loan if the borrower fails to repay the loan. Because, as a guarantor:
>> You are liable in the event that the borrower will fail to repay their loan
>> You may be required to service the portion of the loan that you have placed a guarantee for, in the event of a loan repayment default
>> You can lose your house in the event of default by the borrowers
>> You can provide either your owner occupied or investment character as security
>> You may have to refinance your existing loan to provide a guarantee to the borrowers, and lenders/credit providers will then have to undergo a complete assessment of your financial position
>> You may find that some lenders/credit providers will not accept second mortgages as security for the guarantee
As part of the lenders/credit providers’ requirements, guarantors will be asked to seek independent legal and financial advice. So, contact a reputed and experienced finance brokerage firm before becoming a guarantor. It will analyse your situation and help you in making the right decision.