Using A Guarantor To Buy Your First Home

Case Study: Using A Guarantor To Buy Your First Home

By securing a guarantor for a loan, Mitch and Jeffrey were able
to buy their first home with a smaller deposit – without having to
pay Lender’s Mortgage Insurance

For first home buyers, Mitch and Jeffrey, the trickiest part about purchasing a property is
saving up the deposit. Even though they have managed to save $120,000 so far, this
falls short of a 20% deposit required for their desired price range ($800,000 -
$900,000).

Their mortgage broker informs the couple that if they borrow more than 80% of the
property price, their lender will charge them Lenders Mortgage Insurance (LMI) – a
one-off, non-refundable insurance premium that will be added to their loan.

Not wanting to add thousands of dollars to their loan amount, Mitch and Jeffrey ask their
broker if there’s a different way to get into their own home sooner.

Securing a guarantor

Mitch and Jeffrey ask Mitch’s parents whether they would feel comfortable providing a
guarantee for their home loan. Having paid off their mortgage years ago, Mitch’s parents
have equity in their home which makes them eligible to be guarantors. Using some of
the equity in Mitch’s parents’ home as security for Mitch and Jeffrey’s mortgage would
enable them to avoid additional costs like LMI. It would also make them a more
attractive prospect to lenders.

The four of them discuss what’s involved in being a guarantor – including the risks that
Mitch’s parents would be taking on. After plenty of consideration, Mitch’s parents decide
they’re comfortable and are happy to play a part in helping their son and his partner buy
their own home.

What are the risks of being a guarantor?

Guarantors use their own home as security for someone else’s mortgage and agree to
take on responsibility for the home loan if repayments can’t be met, so it’s not a decision
to take lightly. Anyone considering being a guarantor should seek independent legal and
financial advice before accepting the role. In fact, most lenders will insist on this prior to
accepting a guarantee.

Who can be a guarantor?

Guarantors are usually limited to immediate family members. Normally, this would be a
parent, but it can include siblings and grandparents.

How much does a Mortgage Broker cost?

You might be surprised to learn that our broker service comes at no cost to you. 

Your home loan is not loaded with any extra costs because you used a broker, the rate will be the same, if not better than if you went direct to the lender.

We Do All The Hard Work

From comparing home loan options to preparing the paperwork and supporting you through to settlement, your mortgage broker does all the running around.

 

Get in touch

If you’re thinking about buying a property and want to know more about how the
guarantor process works, please get in touch with Mortgage Choice Clarkson for northern suburbs broker Mandy Dickerson on 94079881 or mandy.dickerson@mortgagechoice.com.au or you can make an appointment on this website.

We’d love to help you get into your first home.