What do you need to know about Family Pledge & Family Guarantee Home Loans? Oct 4, 2018 | Home Loan With property rates rising continuously, numerous first home buyers find it difficult to deposit the money they need. If you’re about to buy your first home and are looking for hassle-free ways to borrow money from the banks, you must opt for a family pledge or guaranteed family home loan. These loans allow you to utilize a family member’s home as security for your home loan keeping you away from huge deposits. It is important for all the parties to understand the advantages and potential disadvantages of these type of loans. Knowledge is the key to every success story. If you are thinking of borrowing a loan from a bank for your first home, you would not be in a condition to afford any sort of risk in the process. Hence, a complete study of the type of loan and the procedure is inevitable. A Family Pledge or Guarantee loan allows the shortfall in your deposit to be secured by a family member’s property. It allows family members to assist you without actually giving you cash or putting cash in. Previously, the whole of the family members’ property was used to secure the loan but now there are many alternates available to the potential loan seekers. This implies that the security of the new purchase can be separated so the guarantee is actually limited. For instance, the family members’ property might be utilized in order to guarantee just 20% of the new loan and the property being purchased would be used as a security for the other 80% of the loan. Either way, the bank is beneficial as Family Pledge or Guarantee loan offers them complete security of repayment. As an assumption, in case the borrower fails to make the repayment, the bank can claim the property of the borrower’s relative or even the borrower’s newly bought property. For the first home buyers, Family Pledge or Guarantee loan is equally beneficial as it allows them to buy a home, avoid the added cost of mortgage insurance and even be able to borrow more, in case the initially borrowed amount becomes insufficient. As an example, it is possible that the property requires renovations for which the buyer would need to borrow extra money from the bank. In such a case, the family member needs to guarantee a minimum of 20% of the purchase price of the new property if the borrower does not have a deposit. With this type of loan, the buyers have an option of buying either a new home or any other investment property. For complete access to the detailed information of various home loan deals, you must consult our lending specialist so that you don’t leave a chance of being mistaken. This will be all the more helpful to you in case you are willing to invest in a property other than your own home. Moreover, the first homeowners are still eligible for a ‘First Home Owners Grant’ in their State (if applicable) under the Family Pledge or Guarantee Loan scheme. There are however some drawbacks of such loans that must be considered before entering such an agreement. The family member who provides the guarantee for the borrower could be putting their family home at risk if the buyer himself fails to repay the loan amount. It is extremely important that you seek independent financial and legal advice before entering a Family Pledge or a Guarantee Loan so that all the parties involved in the procedure clearly understand the consequences of failure and success. All the liabilities must be kept transparent between all the concerned parties before the agreement gets signed. Not all lenders offer Family Guarantee or Pledge Loans and thus you must ensure that you consult Your Finance Adviser’s Lending Specialist to get the best home loan deals before proceeding further. Note that this information is general and is subject to change. Our lending specialist, before acceptance of any proposal or product, must assess your complete financial situation properly.