How Much Deposit Do I Need with a Guarantor?
With a guarantor, you don’t need to have a deposit. Instead of a deposit, you use a family member’s property (usually a parent) as security or collateral for your home loan. A guarantor loan allows you to borrow 100% of the property value of your home, with 20% secured on your parent’s property and the other 80% secured on your property.
Types of Guarantor Loans
There are four types of guarantor loans that are common in Australia:
- Security guarantee: this is popular among first-time homebuyers who have an excellent credit history but no deposit. The guarantor uses property they own as security for the borrower’s mortgage.
- Security and income guarantee: these loans are most often used by parents helping their children who are just starting in the workforce. The child may not have enough income to purchase a home, so the parents’ property is used as security, and their income is used to prove someone can repay the loan.
- Family guarantee: this is when the guarantor is related to the borrower.
- Limited guarantee: This is the most common type of guarantor loan combined with the security guarantee. The guarantor is only responsible for part of the loan (usually 20%).
Benefits and Risks
There are many benefits to guarantor loans:
- You can buy a property right away.
- You can avoid paying LMI.
- You can consolidate some minor debts.
There are also risks to guarantor loans:
- If you default on your home loan, your guarantor is liable to repay what is owed.
- If they cannot repay, they are at risk of losing their property.
If you want to learn more about a guarantor loan, the experts at Mortgage House can answer any questions you may have.