If you have been working hard to save a deposit for your first home you will understand the struggle. You may feel that it doesn’t matter how much you save, property prices seem to be increasing at a faster rate. This can leave you feeling that property, particularly in Sydney is out of reach.
You may be fortunate to have parents who have the cash to support you with a cash gift to help with the purchase of your first home. Or they could support you with a guarantee for all or part of the loan for you to buy your first home.
This could get you on the property ladder much sooner than if you are just trying to save that 20% deposit.
Having a guarantor could potentially help you to get on the property ladder much sooner. Could your parents help secure your first home?
A guarantor can guarantee all or a portion of the loan amount depending on what the banks agree to. By only agreeing to guarantee a portion of the loan a guarantors risks are ultimately lowered.
Risks – If you decide to not pay the loan the guarantor and their assets are ultimately responsible for the loan or loan portion. You may end up paying more for your property as you are borrowing more and the interest costs associated across the life of the loan are increased. It could put a strain on the relationship with the guarantor due to such a big financial commitment.
Both parties should seek independent legal advice before entering into this type of arrangement.
Loan amount – Some lenders will permit borrowing of 100% or even more than 100% however there are many factors when it comes to borrowing and the loan amount that will be approved. Some lenders will also want to see what savings you do have and if you have a good track record of saving money. All lenders will also review your capacity to repay the loan.
Who can be a guarantor
Generally, lenders and banks will want your guarantor to be an immediate family member such as a parent. In some instances, they may permit others such as a grandparent, sibling or good friend. Regardless it is vital for the guarantor to have a good credit score, equity in a property and a stable income.
If you are fortunate enough to have someone who can help you buy your first home treat it with the respect it deserves. Work hard to make your repayments and in time have the loan reviewed so their guarantee can be removed.
When you are looking to purchase contact the team at Select Conveyancing Lane Cove to look after your conveyancing needs.