A third-party to a home loan is called a guarantor, which helps you get a loan by offering additional security support. Generally, guarantors are limited to spouses or immediate family members. A home loan guarantor can be your helping hand to buying your dream home. Many lenders will allow you to obtain a home loan given that your spouse or family member will help you buy by providing additional security support.
The person who will provide additional security assistance is known as a guarantor, which is completely different to being a co-signer or co-applicant, as co-applicant is included on the loan. The co-applicant is responsible for the entire loan, along with the primary applicant, until it has been repaid in full. On the other hand, a guarantor is associated to a loan by a guarantee. Without the loan being repaid in full, this guarantee can be released and the guarantor’s accountability stopped. Using a guarantor will require you that you must be able to afford the entire loan with your income.
How does a home loan guarantor work? To put it simply, a guarantor permits the equity in his or her own property to be used as an additional security for your home loan. Your property will be the primary security for the home loan but the lender will also take a mortgage over your guarantor’s property. Your home loan will not be directly supported by that mortgage but it will be used to support a guarantee from your guarantor.
Who is qualified to be a home loan guarantor?
Generally, guarantors are limited to spouses or immediate family members. Most of the time, parents act as guarantors. Siblings and grandparents can also be included as guarantors with some lenders. Not all lenders limit guarantors to spouses or immediate family members. There are also lenders who can allow extended family members and even former spouses to be your home loan guarantor. That would still vary depending on the lender.
A home loan guarantor can help you secure additional security to buy your own home if you don’t have enough deposit, but do have the ability to make the required home loan repayments. Saving for your home deposit can be really challenging especially when you’re also paying rent. But with a home loan guarantor, you may now be able to borrow the full purchase price and sometimes, even the costs associated with buying the property. However, that would still vary across lenders as some may insist that you fund some of your own equity concerning the purchase even if you have a guarantor.
The amount of guarantee will depend on the individual lender’s policies. It can vary from the full loan amount to as little as twenty percent (20%) of the loan, whereas the loan is for one hundred percent (100%) of the purchase price. Your guarantor can ask to be released from the loan after you’ve built up equity in your own property. The time period for accomplishing that can vary depending on the original deposit, the number of extra repayments made, and whether your property has appreciated its value over the time being.