GovernmenT Grants & SCHEMES

Even though guarantor loans allow you to borrow 100% of the purchase price, many lenders still require you to have 5% of the price in genuine savings. This simply means money you have saved yourself. Sometimes a bank will accept a history of paying rent i place of genuine savings.

Other lenders do not have a specific policy regarding this. Instead, their credit scoring system may decline your loan based on your asset position relative to your income if you don’t have enough savings.

Lenders view people who have a high income and a low asset position as high risk. Many young people spend their money on their education, a car, a wedding or travelling and begin saving for a house only later in life. These people are not high-risk borrowers, they just have different priorities!

Talk to Home Loan Experts to find out which lenders do not require genuine savings.

 Yes, you can. There are a few lenders in Australia who will allow a guarantor for an investment property.  We can often help you buy one investment property; however, guarantor loans for buying multiple investment properties are not normally approved. This is because the guarantor takes an unnecessarily high risk, whereas the borrower makes all of the potential profit If the guarantor is in a strong financial position, then lenders may consider loans for multiple investment properties.

If you cannot make your home loan repayments, then lenders will always take action on your property first before making the guarantor pay out the outstanding debt. Repossession will commence only if the mortgage has been in arrears for 90-180 days.

You do not want the guarantee to be in place for the entire term of the 30-year loan. You should apply to the bank to remove the guarantee when the following conditions have been met:

• You can afford the repayments without any assistance.
• Your loan is for less than 90% of the property value (ideally 80% or less).
• You haven’t missed any payments in the last 6 months.

You must apply with the bank to remove the guarantee – it isn’t automatic!

Most people can remove the guarantee somewhere between 2 and 5 years after they set up the loan, although this can vary.

Many guarantees are set up because the borrower has no deposit, so removing the guarantee often depends on how much the property appreciates in value and how much in extra repayments the borrower can afford to make.

You can still remove the guarantee if you owe more than 80% of the property value, but you may have to pay LMI to achieve this.

That’s OK. As long as your guarantor has sufficient equity, some lenders on our panel can still secure a guarantee on their property, using a second mortgage.

Your guarantor should declare all loans secured on their property, including business or commercial property loans; otherwise approval may be withdrawn before settlement.

Do not commit to any property until:

• Consent for the second mortgage has been granted.
• A bank valuation has been completed on your guarantor’s property.
• Your lender has issued a formal approval.

The lender that already has a home loan secured on your parents’ property needs to consent to the guarantee being secured on the property. There is a small risk that they will deny or withhold consent, which can leave you high and dry.

Most banks will allow only a borrower’s parents to be guarantors however some lenders can consider guarantees from immediate family members such as siblings, grandparents, spouses, de facto partners or adult children.

The guarantor is ultimately liable for a home loan should the borrower default. 

People fear that banks will move quickly to sell a guarantor’s home to cover remaining debt after a default but banks try everything to solve the problem before taking this drastic step. This is because there is often significant process and cost involved in trying to sell the guarantor’s home. The bank knows it will struggle to break even by going down this path so it would much rather the borrower keep paying the mortgage. It will want to work out why the borrower is having trouble managing repayments and whether a solution can be found.

The Situation

Geraldine has been renting for a couple of years and decides to buy her very own home. She has found a lovely 3-bedroom house not far from where she works. The property is worth $500,000 but she knows that she’ll miss out on buying it if she doesn’t act fast. The problem is that she has not saved up a deposit to get a home loan due to renting. She needs at least 5% plus costs to qualify for a mortgage.

Her parents – who are both retired – are willing to gift her the money for the deposit, but it’ll take them around 3 months or so for them to save the money to give to her.

If that wasn’t enough, the gifted deposit wouldn’t be classed as genuine savings, and it would take Geraldine another year or so to build up 5% of the purchase price in her own savings.

The Solution

Instead of saving the money and gifting Geraldine the money for the deposit, her parents can use the equity in their property as security for her home loan. Their home is valued at $600,000 with around $255,000 owing on their mortgage. Since both of Geraldine’s parents are retired, there is one lender that will accept this guarantor scenario.

Using their parents’ property as security for a home loan, Geraldine can borrow up to 105% of the purchase price to cover the home loan plus the costs of stamp duty and conveyancing fees.

If Geraldine were to buy the property with her own 5% deposit, she’d be paying more than $20,000 in Lenders Mortgage Insurance (LMI), a one-off fee payable when borrowing more than 80% of the property value.

The Result

• Geraldine was able to quickly buy the property before someone else did.
• She was able to avoid mortgage insurance.
• She was able to use the few thousand that she had saved for the deposit as extra repayments on her mortgage with enough left over to take a little holiday.

The Situation

Eunice and Kelvin are about to get married and want to buy a family home. They’ve found a perfect place in a quiet suburb valued at $700,000. Their combined income is around $200,000, and they’re currently paying about $1,000 a week in rent for a studio apartment in the city.

Eunice and Kelvin also have a car loan with $30,000 owing and a credit card. The credit card is almost at its limit at $6,000, but they’ve been making their payments on time. They’re paying $750 a month for their car loan and $180 a month in credit card repayments. They’ve been managing their bills and debts perfectly, but they’re worried that they won’t be able to manage all of their financial commitments by having to make home loan repayments as well.

Luckily, Kelvin's parents are working full time and own a home worth $1.2 million with around $600,000 owing on the mortgage.

The Solution

By using the guarantor option, their bank is willing to lend up to 105% of the purchase price to cover stamp duty and conveyancing fees. On top of that, they’re able to consolidate one of Eunice and Kelvin's debts into the home loan. Effectively, they’ll be borrowing about 109% of the purchase price.

They decide to consolidate the car loan because it has the most amount of debt owing.

The Result

With their home loan approved, Eunice and Kelvin are paying $4,287 per month in mortgage repayments. This includes their car loan repayments.

So how much are the couple better off by consolidating this debt into their loan?

By not consolidating and paying their debts separately, Eunice and Kelvin would have been paying $4,876 per month.

• They are $589 better off per month and can better manage their debt.
• They avoided having to save a deposit to buy the property.
• They avoided the cost of LMI.
• They’re enjoying their new home before they tie the knot.