Lending Guidelines

Thinking of applying for a guarantor loan? You may have found a great lender with cheap rates. But what if they don’t approve your loan?

It’s for this reason that we believe you should firstly look at which lenders will accept your situation, then work out who can give you the best interest rate.

To help you, we’ve listed the common areas where people get unstuck with guarantor loan applications.

General lending policy

As with all home loans, guarantor loans are subject to the lender assessing and accepting all aspects of your situation.

The lender will look for:

  • Stable employment – not too many jobs in the last 2 years.
  • Stable residential history – not too many addresses in the last 2 years.
  • A good credit history – no defaults, judgments or bankruptcy and not too many enquiries.
  • Serviceability – that you can afford the loan.
  • Acceptable security – that the property you are buying is in a good condition and would be easy to market if you decided to sell it.
  • All other areas – that you can repay the loan before your retirement age, that you don’t have a bad history with the lender and that you can prove your income with payslips or other documents etc.

What if you don’t meet the above policies?

It doesn’t always mean that your loan will be declined!

The secret is to apply with a lender that has flexible policy and understands your situation.

We can help you find a suitable lender that will view your situation in a favourable light, approve your loan and offer you great interest rates and low fees.

To speak to one of our specialist mortgage brokers please call us on 1300 399 056 or enquire online and we will call you to discuss your situation.

LVR / borrowing more than the purchase price

The Loan to Value Ratio (LVR) is the percentage of the property value that you are borrowing.

The higher the LVR the higher the risk to the lender. For that reason, most banks prefer to keep the LVR as low as possible.

For example, if you borrowed $500,000 secured on a property worth $500,000 then your loan has 100% LVR, as you have to borrow the total amount of the purchase price.

Most banks consider 100% LVR loans as too risky, unless there is a guarantor to provide additional security.

Guarantor security

By adding the guarantors property as additional security we can reduce the LVR to below 80%, which is where most lenders consider the loan to be safe.

For example, if you wanted to borrow $500,000 for a property valued at $500,000 then you would need a limited guarantee of at least $125,000 to reduce the LVR to 80%.

If the guarantor already has a loan on their property then this needs to be taken into account when calculating the LVR.

If your guarantor doesn’t have enough equity in their property then please enquire online or call us on 1300 399 056 to speak to one of our mortgage brokers. We can help you find the best lender for your situation.

Loan purpose

As a general rule, most banks will only approve guarantor home loans that are being used to purchase an owner occupied property.

The below loan purposes are restricted and are not available from many lenders:

  • Construction.
  • Debt consolidation.
  • Investment.
  • Refinances.

Your asset position

Lenders consider your asset position in relation to your age and income.

For example, the banks would not look favourably a on 50 year old first home buyer with only $20,000 in assets. However, a 20 year old in the same position would usually be fine.

Most lenders don’t like to see significant consumer debts such as credit cards and car loans.

Although, a few lenders will accept borrowers with several consumer debts and roll them into the home loan when you buy a property.

This helps to greatly reduce your repayments each month and allows you to effectively manage your debts.

Your income / the guarantor’s income

Naturally the lender will not want to give you a loan if you can’t afford it!

Low doc loans are not available to use with guarantors so in all situations, you must be able to prove your income.

Where the lender is not satisfied that your income will cover the loan repayments, you may be able to use a serviceability guarantee.

This is where the guarantor pledges their income to help you repay the loan. It can be quite a useful guarantee for students who don’t have a high income and need the support of their parents to buy their first home.

The guarantor’s asset position.

It is important that the guarantors are in a strong financial position and have the income or assets to support the borrower, in the event that they cannot repay the loan.

Most banks prefer a guarantor that is established, has a property with no existing mortgage and has a strong income stream.

The risk to the bank is thereby minimised.

The guarantor’s age / pensioners

Some lenders prefer not to approve loans if the guarantor is over the age of 50. This is because the guarantor is approaching retirement age and will soon cease working.

Other lenders do not accept guarantees from pensioners, as they prefer not to be in a position where they must call on a pensioner to enforce a guarantee.

However, If the borrowers are in a strong financial position then we may be able to help you find a bank that accepts a guarantee from a pensioner.

The guarantor’s property

The guarantors property must be in good condition and the guarantor is generally required to have substantial equity in the property.

There is no point in using a guarantor’s property as security if it still has a large loan attached to it.

In this case, it will be difficult for the lender to recover funds if the borrower defaults.

The guarantor’s current home loan

The guarantor’s current home loan must have been paid on time and there must be sufficient equity available for the guarantee.

For example, a loan of $280,000 on a property of $500,000 would usually be fine for a guarantee.

Although, if the loan amount was $450,000, there wouldn’t be enough equity in the property to support an application for a guarantor loan.

Find out which lenders you qualify with!

There are a variety of lenders out there that offer loan products to suit your situation.

Please call us on 1300 399 056 or enquire online and one of our mortgage brokers will help you get approval with bank that offers low fees and great rates!