We can help you get 100% home loan as a family guarantee loan Aug 28, 2018 | Home Loan When you look for loan to buy a home, you come across many terms and conditions set by the lender. Especially, if you have approached a major lender for this purpose, you will have to fulfil their criteria which are slightly difficult in order to get home loans in Australia sanctioned. From having a good credit record paying the deposit money, everything needs to be up-to-date. You have to pay 20% your home price as a deposit to the lender. However, as the prices of homes are increasing day by day, this 20% also becomes a big amount to be paid and hence, you don’t wish to pay it. When you try to save this deposit money, you find yourself in more difficult situation. If you don’t have the money to pay deposit, many of the lenders want you to pay the cost of Lenders Mortgage Insurance which is also called LMI. This insurance is to safeguard the lender in case you do default on the repayment. Most of the borrowers don’t wish to pay this money and involve the insurer in the process. In such a scenario, it becomes really difficult to get the home loan. So, you have to either arrange for deposit money or pay LMI cost. No, you don’t have to. There is one more way that can help you. You can have a family security guarantee for your home loan. This will not only lessen the amount of deposit you have to pay but also protect you from paying LMI cost. What is family guarantee? For family guarantee, any of family members need to have sufficient equity in their home and he or she must be ready to become a guarantor for your home loan. If this works out positively, this equity of the family member in their home is used as security guarantee for your loan. The person providing the guarantee, i.e. the guarantor does not have to pay any money to the lender or the borrower. They just have to accept the terms and conditions as well as obligation related to their entry into the guarantee and. The repayments are to be done only by the guarantor. The security of the guarantor does not cover the entire loan amount. It only covers a part of it which reduces the loan to value ratio up to 80%. This is the limit on the guarantee. When your loan to value ratio reduces to this percentage, you don’t need to pay the cost of Lenders Mortgage Insurance. This means that, you can easily save the deposit. How does it work? If your parents or any other family member provide you the guarantee which is secured on their property, then you don’t need to pay any deposit or don’t need to have any savings. You can get around 105% of the price of your home as loan. This is probably the best way to save the deposit and get more than 100% of the price of home as loan. Once your equity in the home touches 20%, you and the guarantor can apply to the lender for releasing the guarantor from the obligations and eradicate the guarantee. If your loan is approved by the lender after you fulfil all their criteria, but there is sudden change in circumstances occur and you cannot do the repayments accordingly, the lender has all legal rights to sell your property and recover the loan amount. There is a possibility that the selling price of your property is less than the loan amount. In this situation, the lender is legally authorised to recover the limited guarantee amount from the person who had guaranteed your loan. So, it is important for you to be particular about your repayments. If you fail to do repayment on time, your dear one may have to face the financial loss in the form of money they have to pay to the lender. This can lead to the problems in relationship also. Is there possibility of guarantor losing their property? This can happen in the worst scenario. Sometimes it happens that the borrower fails to repay the loan amount. Therefore, lender tries to recover it by selling the property of borrower. However, if the selling price does not match up with the loan amount, then the lender turns towards the guarantor. They have the legal right to sell the property of guarantor kept as security in order to recover limited guarantee amount. Be aware of your responsibility As mentioned earlier, if you fail to repay the loan amount and the guarantor falls into trouble due to this, it can create a family tension. The relations can go bitter for lifetime. So, it is imperative for both the borrower and the guarantor to think deeply and consider watchfully if the arrangement of guarantee will be appropriate for both of them. It is also very important for both of them to understand all the terms and conditions as well as the obligations related to family guarantee before going ahead and signing it. A guarantor can seek for legal advice before entering into the family guarantee. The borrower and the guarantor both can take the help of mortgage broker in this process. They can give you all the essential knowledge about the obligations related to family guarantee and help you in taking the decision. Not only this, these brokers can give you information about the various loan options available at various financial institutes, the best home loan rates, etc. They can guide you on which loan or lender will be suitable for you. Concluding note A family guarantee is like a gift you get from your family, most probably from your parents; that can help you to purchase a home faster and that also without paying the cost of lenders mortgage insurance. It also helps you to own a property by making use of deposit less than 20% of the value. The guarantor offers additional security in the form of equity in their property. It is important for the guarantor to know understand the obligations related to family guarantee before entering into it. The borrower must be responsible enough to repay the loan in time in order to avoid getting the guarantor into financial trouble.