Family Guarantee Home Loans
Turn your first home Reality with a Little Help from Your Family
Buying a home can feel out of reach, especially if you’re struggling to save for a large deposit. But what if you didn’t have to do it all on your own? With a Family Guarantee Home Loan, you can benefit from the support of your family to help get your home loan. This type of loan allows a family member to provide the equity in their existing property as an additional security, helping you buy
your home sooner and avoid getting into the high cost of Lenders Mortgage Insurance (LMI).
See how a Family Guarantee Home Loan can bring your dream of homeownership closer.
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What is a Family Guarantee Home Loan?
A Family Guarantee Home Loan, sometimes known as a guarantor home loan, allows you to use a family member’s home equity to secure part of your home loan. This can help you avoid LMI, get better rates and possibly borrow more than you could with your deposit alone.
- How It Works: A family member, often a parent, agrees to use the equity in their property as additional security for your Family Guarantee Home Loan. This reduces the lender’s risk, which allows you to borrow a higher percentage of the property’s value and still avoid LMI. Mostly the guarantor picks up 20% or more of the purchased property as a guarantee amount.
- Who Can Be a Guarantor?: Only, a close family member such as a parent can act as a guarantor for your Family Guarantee Home Loan. They need to have sufficient equity in their property and meet the lender’s criteria as well.
- Benefits:
- Avoid LMI costs
- Potentially borrow a higher amount
- Get better rates on your loan
- Enter the property market earlier
Understand the benefits and responsibilities of involving a family guarantor in your Family Guarantee Home Loan.
Types of Family Guarantee Home Loans
- Limited Guarantee: The guarantor’s responsibility is limited to a specific portion of the loan, such as 20% of the property’s value. This minimises lender’s risk thus helping you avoid LMI with a Family Guarantee Home Loan.
- Security Guarantee: The guarantor uses their property as additional security for the Family Guarantee Home Loan, helping you get a higher loan amount.
- Family Pledge Guarantee: A flexible option where the guarantor pledges a portion of their property’s equity, helping you secure a Family Guarantee Home Loan without requiring a large deposit.
Explore the different types of Family Guarantee Home Loans to find the best fit for your situation.
How do Family Guarantee Home Loans work
A Family Guarantee Home Loan works in the following way:
- Same as normal home loan: A Family Guarantee Home Loan works in a similar way to a normal home loan
- Cash contribution: A Family Guarantee Home Loan does not require any cash contribution by the guarantor. A guarantor only provides additional security to cover 20% or more of the property being purchased.
- Gaurantee portion: A Family Guarantee Home Loan in some cases allows the guarantor to guarantee only a portion of the loan. Typical guarantee amount if for 20% of the property value, so as to avoid LMI.
- Repayments: A Family Guarantee Home Loan requires the borrower and not the guarantor to make all the repayments. This is to both the normal and guaranteed portion of the loan.
- Guarantor security: A Family Guarantee Home Loan in most cases takes additional security towards the 20% of the value of the property being purchased.
- Guarantor position split: A Family Guarantee Home Loan mostly will require the guaranteed loan to sit as a separate home loan split.
What You Need to Know as a Guarantor
- Understand the Commitment: As a guarantor on a Family Guarantee Home Loan, you’re providing additional security for the loan. If your family member is unable to meet their repayments, the lender may look to you to recover the arrears or shortfall in case of mortgagee sale.
- Minimising Risks: Consider limiting your guarantee to a specific amount or percentage of the Family Guarantee Home Loan to reduce large exposure to risk. You should not agree to taking over the risk, if you don’t want to.
- Review the Terms: Make sure to review the loan terms and definately seek independent legal advice to fully understand your obligations when agreeing to a Family Guarantee Home Loan.
Find out what it means to be a guarantor and how to protect your interests in a Family Guarantee Home Loan.
Frequently Asked Questions About Family Guarantee Home Loans
Common Questions Answered
Yes, alternatives include saving for a larger deposit, using government grants, or exploring shared equity schemes instead of a Family Guarantee Home Loan.
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