With years of rising property prices in Australia, guarantor loans have become more common. They don’t just make it easier to buy a home. For many, organising a guarantor is the only realistic way to enter the property market.
One out of every 5 Australians receives help from family when buying a home, whether it’s help paying for the deposit, covering the extra costs associated with getting a mortgage, or a family member acting as a guarantor. If you are ready to buy a home, a guarantor loan may be a great option. Read on to find out more about guarantor loans in Australia.
Why Are Guarantor Loans So Popular?
Guarantor loans make competitive mortgages accessible to more borrowers. This is because you don’t need to have saved up a large deposit. Even without a deposit, you can borrow anywhere from 100% to 110% of the property value, depending on the type of loan you are applying for.
Also, with a guarantor, it’s possible to qualify for low rates, full-featured loan products, and you won’t have to pay LMI. With these benefits, you can save thousands on your mortgage.
How Much Can I Borrow with a Guarantor?
You’ll still need to meet your lender’s criteria and demonstrate you are a reliable borrower. As long as you do, you can borrow the full purchase price and more to help you take care of costs related to your loan like stamp duty and conveyancing, or you can consolidate your debt.
- First-time homebuyers can borrow 105% of the property value.
- When refinancing with a guarantor loan, you can borrow 100%.
- With a construction loan, you can borrow 105% of the land value plus the cost of construction – just make sure you also save an extra $5k in case your project goes over budget.
- For an investment property, you can borrow 105%.
- If you want to consolidate your debts when you buy a home, you can borrow up to 110% of the property value with a debt consolidation loan.
When a guarantor uses their property or other assets to secure your mortgage, the bank doesn’t have to take on very much risk. Presenting less risk opens up a lot of doors to you as a borrower.
Interested in seeing if you qualify for a guarantor loan? Call us on (07) 3146 5732 or fill out our online enquiry form today.
What if You Aren’t a First Homebuyer?
Surprisingly, you’ll have a hard time finding a lender that will offer a guarantor loan if you are purchasing your second home. Even though there are different reasons someone may need to purchase their second home that aren’t related to a credit or financial reliability, most banks take a black and white approach to second homebuyers. In their eyes, if you already purchased one home, you should have enough assets to be able to purchase a second home without a guarantor.
In reality, life changes like moving for work, divorce, or totally uncontrollable factors like a serious illness, can lead someone to sell their first house and then have to re-enter the market as a second-time homebuyer.
There are lenders who are willing to approve a guarantor mortgage application for borrowers who are on their second home, depending on the details of the situation. Contact us today if you need any help with qualifying for a guarantor loan as a second homebuyer.
The Basics of How Guarantor Loans Work
With a guarantor loan, it’s not just you who is involved in the mortgage, but your guarantor as well. You’ll have to find someone who is willing to help you with your home loan and use their assets as a security. This is why most guarantors are the borrower’s parents.
Your parents probably have enough equity in their own property, or they may have another asset they can use like a term deposit, to make it easy for you to take out your loan. As long as you pay your mortgage repayments on time, all they have to do is act as a guarantor. Also, once you’ve paid off enough of your loan, they don’t have to be your guarantor any longer, which takes any financial responsibility off of their shoulders.