When the prospect of buying your first home is on the horizon, few feelings are more deflating than realising you might need a guarantor…
But, this option could be your key to entering the property market sooner.
Your guarantor is someone who will co-sign your loan and become legally responsible for meeting mortgage payments if you can’t. You’re more likely to need one if you have less-than-great credit, a low deposit, or you’re in self-employment. While finding a guarantor means you’ll grab your dream home, it could place the willing participant at risk if you don’t meet your mortgage payments. By understanding more about guarantor home loans, you can decide if it’s right for you.
Australia’s rising property prices are making guarantors necessary
In certain parts of Australia, including Brisbane and Canberra, property prices are rising. With higher property prices comes the need for a bigger deposit. In the absence of a hefty savings account, first-time buyers may struggle to meet their bank’s deposit demands. BIS economics has found that banks are also exercising tighter lending criteria. As a result, fewer young buyers can snag the properties they want.
In such scenarios, a guarantor might assure a bank that their mortgage is safe. For example, when someone produces a lower deposit, a guarantor loan may increase their likelihood of acceptance. Or, if their credit isn’t excellent, having a guarantor with the right assets could result in a mortgage closing successfully.
What is a guarantor and who can be one?
Let’s say you’ve seen the perfect property and you either want to buy it with a minimum deposit or no deposit at all. The bank still needs a deposit, so you find yourself at a crossroads. You can either go one way and look elsewhere or go the other way and get a guarantor loan.
In short, a guarantor loan is a loan where someone else assumes full or partial responsibility for repaying it. The loan is for placing a deposit on your home. You can pay the loan off using alternative means, such as enhancing the property’s value or paying down the mortgage faster.
Usually, your guarantor will have a strong relationship with you. Such as a parent, sibling, or partner. Their credit should be good, ideally, they’ll be in employment, and they’ll have an asset that you obtain the loan against.
The risks and benefits of guarantor loans
The most obvious benefit is that you get the property you want. But, if you can’t realistically meet the mortgage payments even with someone funding your deposit, you place strains on your guarantor.
Another benefit is that you can access a popular property quickly and vary the approach you take to reduce the loan. For example, if you’ve found the perfect house and you have an upcoming promotion, you can increase the mortgage payments at a later date and decrease the loan.
When seeking such loans, consider the relationship you have with the individual. Will they remain gracious about being your financial bolster? Or are they likely to remind you of it in every conversation?
Ultimately, a guarantor loan can bring you closer to your property ownership dreams. At Achieve Homes, we make buying a cost-friendly property in Canberra easier. Contact our team about your property needs today.