23 Aug 2021

How Much Deposit Do I Need with a Guarantor?

Deposit: How Much is Enough for a New Home Purchase?

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:


  1. 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. 
  2. 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. 
  3. Family guarantee: this is when the guarantor is related to the borrower.
  4. 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. 


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