What Is a Family Guarantor?
A family guarantor is a borrower’s close friend or family member that has taken on the responsibility of guaranteeing a home loan by placing the equity they have accrued in their property as security for the borrower’s mortgage. In Australia, a guarantor must be a citizen or permanent resident and above the age of 18 but below the age of 65. Additionally, the property being used as security must be located in Australia.
A family guarantor is a great option for a potential borrower who is ready to purchase a home or property but is unable to save for a 20% deposit. A potential borrower who cannot save for a deposit can avoid paying it by having a family guarantor because the equity that acts as the home loan security is considered to be a replacement for a deposit.
However, it can be risky to use a guarantor for a home loan because the equity being used as security is at risk of being sold by the mortgage broker if the borrower defaults on their home loan. The guarantor’s credit score is also at risk of becoming damaged if the borrower defaults on their home loan and the equity is sold.
A borrower can receive various benefits from having a home loan guarantor, including the following examples:
- The potential to consolidate minor debts
- The borrower will not be required to pay for Lender’s Mortgage Insurance
- The ability to become a homeowner faster than without a guarantor
- The borrower will not be required to place a deposit on their home loan