For many first time buyers, the biggest hurdle they’re going to face is finding the money to put down as a deposit. This could put many lenders off, meaning they may struggle to get a home loan offer accepted. However, being someone’s guarantor means you could help them get the keys to their first home.
What is a guarantor home loan?
As a home loan guarantor, you are guaranteeing that you can make the repayments on the borrower’s home loan, should you need to. You will be named on the home loan but you won’t own a share of the property, nor will your name be on the deeds. You’re purely responsible for making the repayments, should the borrower fall behind.
For this reason, people tend to be guarantors only to those they know really well, which is usually the parents or a close family member.
There are two ways a person is able to be a home loan guarantor:
1) Use your savings to offset against the home loan – depending on the terms of the home loan, you might not be able to withdraw any money from this savings account until a certain amount of the home loan has been paid off.
2) Use your own property to offset against the home loan – if a lot of repayments are missed, you could be at risk of having your home repossessed.
Who can be a home loan guarantor?
This differs from lender to lender, but generally speaking either a parent, step-parent, grandparent, or friend could potentially act as a guarantor.
Parents are the most common type of home loan guarantor we see. As a home loan guarantor, you will need to meet the following criteria:
- Be over 21 years old
- Own your own home outright or have built up enough equity to meet the lender’s criteria.
- Have a good income – this proves you have enough money to meet any defaulted repayments, as well as paying your own home loan if you still have one.
- Have a good credit score – again, to show you’re financially reliable.
- Seek legal advice – some lender’s will need to see proof that you’ve had legal advice before the application can continue.
Who might be interested in guarantor home loans?
Those who might need a home loan guarantor are likely to be one of the following:
- First time buyers
- Low income earners
- A small or nonexistent deposit
- A poor credit score or no credit history
- Just started a new job
Does being a guarantor affect my home loan?
It won’t directly affect your current home loan but it could affect any future home loan applications you make. When applying for a home loan, lenders are primarily looking at every aspect of your financial life, including any debts or dependents you might have. As a guarantor, you are responsible for paying your family member or friend’s debt, so the lender has to take this into consideration when calculating your affordability.
Do you have to be a guarantor for the whole term of the home loan?
Once the borrower has built up enough equity in their home, depending on the original agreement with the lender, you can be removed as the guarantor.
Many lenders offer guarantor home loans so get in touch with us today for more information about becoming a home loan guarantor.