A guarantor home loan is a big commitment that requires serious consideration.

As distinct from a normal home loan, an additional party is involved.

Therefore it is essential that you ensure that your guarantor is not put at risk and your family relationships are not damaged by the arrangement.

So how do you know if a guarantor loan is right for you?

Please read on to find out what you should take into consideration before getting a guarantor loan.

Can you get loan approval on your own?

If you have a saved deposit, then it is usually better for you to apply directly for a home loan.

Or, if you haven’t saved the entire amount of a deposit you can seek a gift from your parents to put towards the purchase price.

To see whether or not you qualify for a home loan, please speak to our mortgage brokers who can help calculate your serviceability.

If you find that you qualify for a home loan but want to avoid expensive Lenders Mortgage Insurance (LMI), you can still consider a guarantor option.

However, it is essential that you and the guarantors understand the risks involved and that the arrangement is suited to your needs.

Are you financially stable?

When considering whether to seek the help of a guarantor, it is important that you are in a strong financial position and can afford the loan repayments.

The guarantor is financially liable for some of your debt, and although this guarantee is in place you certainly do not want the bank to call on it!

Ask yourself, what would you do if you lose your job? What would happen if you were to become ill, injured or pass away? If you would find it difficult to repay your debts in the event that unexpected circumstances arose, then we do not advise that you take out a guarantor loan.

This is because you are likely to be placed in a position where the bank will enforce the guarantee, thus making your guarantors liable for your debt.

Is your relationship with your guarantor stable?

Using a guarantor is not suitable if you have an unstable relationship with your guarantor, or the rest of your family.

As this is essentially both a commercial domestic relationship, you need to be sure that this joint financial commitment will not add further pressure or escalate family feuds.

Is your relationship with your partner stable?

Generally, it is not advisable to seek a guarantee if you and your spouse have an unstable relationship or there are prospects of relationship breakdown or divorce.

A divorce can be complicated if a guarantor’s property is tied in with the loan on your home.

We recommend that before buying a home with your spouse, you discuss possible options in the event that you were to separate.

Do your guarantors understand the risk they are taking?

A guarantor loan is not appropriate if the guarantor is not of sound mind, is not financially literate or otherwise lacks the capacity to make an informed decision.

Sometimes, it can even be the age or language barrier that may prevent a party from gaining a complete and full understanding of what is required of them.

If this is the case, it is likely that they will not be able to enter into a guarantee.

We recommend that all guarantors seek independent legal advice before entering into this arrangement.

Are the guarantors entering into this for the right reasons?

It is important that the guarantors willingly want to take up this obligation and are not being pressured by family to enter into this agreement.

Whilst it may seem like the best decision at the time, guarantors expose themselves to a significant amount of risk by guaranteeing the borrowers loan.

This risk can be exacerbated where the borrower is not in a position of financial security.

If the guarantee is actually called upon, it will no doubt cause a large familial divide. Therefore, it is vital that both parties sit down and have a discussion about this arrangement.

Any concerns should be ventilated so that they can be resolved. This will limit the damage to the relationship and clarify that the entire transaction has been well thought out.

Talk to a Mortgage Broker

If you think that a guarantor loan is right for you, please enquire online or call us on 1300 399 056 to talk to one of our specialist guarantor loan mortgage brokers.

We’ll quickly work out whether you can afford the loan, or whether you may need the support of a guarantor.

Where this is the case, we will identify which loans you may qualify for and which banks offer the most competitive pricing. Call us today to find out more!