What is a Family Guarantor?
A Family Guarantor, also known as a family pledge is a mechanism available for borrowers who are looking to enter the property market, using the security of family property in substitution of a cash deposit. Lenders will allow the arrangement to be in place with the borrower’s parents or immediate family to be the guarantor on the loan.
The premise behind a family guarantor is to reduce the loan to value ratio (LVR) against the property being purchased. This is a common issue first home buyers experience when entering the property market. They have limited savings to go towards the deposit of the property they are purchasing and the transaction costs (including stamp duty and state charges). Click here, to read more about the Stamp Duty changes for Victoria First Home Buyers.
We will now go through an example of a family guarantor structure, showing how the credit structure assists First Home Buyers.
What is a Family Guarantor?
A Family Guarantor, also known as a family pledge is a mechanism available for borrowers who are looking to enter the property market, using the security of family property in substitution of a cash deposit. Lenders will allow the arrangement to be in place with the borrower’s parents or immediate family to be the guarantor on the loan.
The premise behind a family guarantor is to reduce the loan to value ratio (LVR) against the property being purchased. This is a common issue first home buyers experience when entering the property market. They have limited savings to go towards the deposit of the property they are purchasing and the transaction costs (including stamp duty and state charges). Click here, to read more about the Stamp Duty changes for Victoria First Home Buyers.
We will now go through an example of a family guarantor structure, showing how the credit structure assists First Home Buyers.
What is a Family Guarantor?
A Family Guarantor, also known as a family pledge is a mechanism available for borrowers who are looking to enter the property market, using the security of family property in substitution of a cash deposit. Lenders will allow the arrangement to be in place with the borrower’s parents or immediate family to be the guarantor on the loan.
The premise behind a family guarantor is to reduce the loan to value ratio (LVR) against the property being purchased. This is a common issue first home buyers experience when entering the property market. They have limited savings to go towards the deposit of the property they are purchasing and the transaction costs (including stamp duty and state charges). Click here, to read more about the Stamp Duty changes for Victoria First Home Buyers.
We will now go through an example of a family guarantor structure, showing how the credit structure assists First Home Buyers.
Example of a Family Guarantor loan?
Borrowers Tom and Jane are looking to purchase their first home for the value of $400,000. Tom and Jane currently have a 10% deposit and additional funds to pay for the stamp duty costs at settlement.
Tom’s father has an investment property, which has a market value of $300,000. Tom’s father would like to assist Tom and Jane in purchasing their first home and after discussions with his lawyer, he feels that a family guarantor using his investment property would be suitable.
After discussions with their Mortgage Broker, Tom and Jane will arrange to have two loan splits as follows:
Loan number one has a borrowing ratio of 80% (of the purchase price) and loan two has a borrowing ratio of 10% (of the purchase price). Loan number two would be secured against his dad’s investment property.
By using the security of the second property, we have reduced the borrowers LVR exposure on the purchasing property. This allows us to save the cost of Lenders Mortgage Insurance (LMI). LMI is an insurance policy that is taken out by the bank and the insurer on behalf of the borrowers, this policy is taken out generally when the LVR is greater than 80%. This represents a saving for the borrowers of $7,000 – $15,000 at settlement.
Things to consider with a Family Guarantor loan
Standard credit metrics will still be applied to the borrowers and the borrowers will have to demonstrate they can service both loans, for repayment and affordability reasons. It is advised the family or parents providing the security, receive legal advice (not required – but encouraged) to ensure they understand their legal obligations.
The borrowers will be able to negotiate with their Mortgage Broker, market leading rates and charges as their borrowing will be under 80% LVR. Each bank will structure a family guarantee loan differently, so it is important to discuss your options with a Mortgage Broker.
Example of a Family Guarantor loan?
Borrowers Tom and Jane are looking to purchase their first home for the value of $400,000. Tom and Jane currently have a 10% deposit and additional funds to pay for the stamp duty costs at settlement.
Tom’s father has an investment property, which has a market value of $300,000. Tom’s father would like to assist Tom and Jane in purchasing their first home and after discussions with his lawyer, he feels that a family guarantor using his investment property would be suitable.
After discussions with their Mortgage Broker, Tom and Jane will arrange to have two loan splits as follows:
Loan number one has a borrowing ratio of 80% (of the purchase price) and loan two has a borrowing ratio of 10% (of the purchase price). Loan number two would be secured against his dad’s investment property.
By using the security of the second property, we have reduced the borrowers LVR exposure on the purchasing property. This allows us to save the cost of Lenders Mortgage Insurance (LMI). LMI is an insurance policy that is taken out by the bank and the insurer on behalf of the borrowers, this policy is taken out generally when the LVR is greater than 80%. This represents a saving for the borrowers of $7,000 – $15,000 at settlement.
Things to consider with a Family Guarantor loan
Standard credit metrics will still be applied to the borrowers and the borrowers will have to demonstrate they can service both loans, for repayment and affordability reasons. It is advised the family or parents providing the security, receive legal advice (not required – but encouraged) to ensure they understand their legal obligations.
The borrowers will be able to negotiate with their Mortgage Broker, market leading rates and charges as their borrowing will be under 80% LVR. Each bank will structure a family guarantee loan differently, so it is important to discuss your options with a Mortgage Broker.
Example of a Family Guarantor loan?
Borrowers Tom and Jane are looking to purchase their first home for the value of $400,000. Tom and Jane currently have a 10% deposit and additional funds to pay for the stamp duty costs at settlement.
Tom’s father has an investment property, which has a market value of $300,000. Tom’s father would like to assist Tom and Jane in purchasing their first home and after discussions with his lawyer, he feels that a family guarantor using his investment property would be suitable.
After discussions with their Mortgage Broker, Tom and Jane will arrange to have two loan splits as follows:
Loan number one has a borrowing ratio of 80% (of the purchase price) and loan two has a borrowing ratio of 10% (of the purchase price). Loan number two would be secured against his dad’s investment property.
By using the security of the second property, we have reduced the borrowers LVR exposure on the purchasing property. This allows us to save the cost of Lenders Mortgage Insurance (LMI). LMI is an insurance policy that is taken out by the bank and the insurer on behalf of the borrowers, this policy is taken out generally when the LVR is greater than 80%. This represents a saving for the borrowers of $7,000 – $15,000 at settlement.
Things to consider with a Family Guarantor loan
Standard credit metrics will still be applied to the borrowers and the borrowers will have to demonstrate they can service both loans, for repayment and affordability reasons. It is advised the family or parents providing the security, receive legal advice (not required – but encouraged) to ensure they understand their legal obligations.
The borrowers will be able to negotiate with their Mortgage Broker, market leading rates and charges as their borrowing will be under 80% LVR. Each bank will structure a family guarantee loan differently, so it is important to discuss your options with a Mortgage Broker.
If you want to learn more about how these changes impact your borrowing capacity and ability to purchase your first home, contact hfinance on info@hfinance.com.au or 1300 928 227. Free and confidential. Use the following to speak with a Melbourne Mortgage Broker, Gold Coast Mortage Broker, Preston Mortgage Broker or New York Mortgage Broker.
If you want to learn more about how these changes impact your borrowing capacity and ability to purchase your first home, contact hfinance on info@hfinance.com.au or 1300 928 227. Free and confidential. Use the following to speak with a Melbourne Mortgage Broker, Gold Coast Mortage Broker, Preston Mortgage Broker or New York Mortgage Broker.
If you want to learn more about how these changes impact your borrowing capacity and ability to purchase your first home, contact hfinance on info@hfinance.com.au or 1300 928 227. Free and confidential. Use the following to speak with a Melbourne Mortgage Broker, Gold Coast Mortage Broker, Preston Mortgage Broker or New York Mortgage Broker.