What is the point of finding the best home loan on the market if your application gets declined? We believe the best way to find a loan is to find out which lenders can approve your loan, and then work out who can give you the best interest rate.

On this page 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, we just have to find a suitable lender that will view your situation in a favourable light. Contact us for more information.

LVR / Borrowing more than the purchase price

The Loan to Value Ratio (LVR) is the percentage of the property value that you are borrowing. For example if you borrowed $500,000 secured on a property worth $500,000 then your loan has a 100% LVR. This example would be a very high risk to the lender if there was no guarantor to provide additional security.

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

If the guarantor has a loan on their property already then this needs to be taken into account when calculating the LVR. You can also use the LVR calculation to work out the amount of the limited guarantee required. 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 your guarantor doesn’t have enough equity in their property then please enquire online and one of our mortgage brokers will discuss the alternative options with you.

Loan purpose

As a general rule guarantor home loans are 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 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, greatly reducing your repayments each month.

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 for use with guarantors so in all situations you must be able to prove your income.

If your income is not satisfactory proof that you can afford the loan then you may be able to use a serviceability guarantee where the guarantor pledges their income to help you repay the loan.

The guarantor’s asset position.

Guarantors that are not in a strong financial position may be put at a disadvantage by providing the guarantee to their son or daughters loan. Lenders prefer a guarantor that has a good asset position, who is unlikely to get into any financial strife in the event that the borrowers can’t repay the loan.

The guarantor’s age / Pensioners

Some lenders dislike approving loans with guarantors that are over the age of 50 as they are approaching their retirement age. Others 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 can help you find a lender that can accept a guarantee from a pensioner.

The guarantor’s property

The guarantors property must be in a good condition and the guarantor usually must have substantial equity in the property to provide as security.

The guarantor’s current home loan

The guarantor’s current loan must have been paid on time and must not be large enough to leave little 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 they had a loan for $450,000 then there wouldn’t be enough equity in the property for a guarantor loan to work.

Which lenders do you qualify with?

Please enquire online and one of our mortgage brokers will contact you to discuss your situation and to find out which lenders can help you with a guarantor home loan.