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Mortgage Brokers Advice - How Do Guarantors Help First Home Buyers

Are you looking to buy your first dream home in Melbourne? Everyone would want this process to be fun and exciting and not tiring. The chances are that if you are planning on buying a desirable property, you might need a home loan. Home loan brokers will have to be your first work of action to understand your eligibility for a home loan. Commercial finance brokers can help in a number of ways like:

  • They have a good database of major banks and reputed lenders
  • Special finance brokers will handle your complete application process
  • Brokers have great negotiation power and experience which can be helpful in identifying lucrative interest rate discounts

The property-buying process can be frightening and hence you do not have to try and understand everything. You can hire an expert mortgage broker in Melbourne who will get to know your situation. They will assist you to find the best home mortgage deal as per your need.

What Do You Mean By “Guarantor Home Loan”?

Like a standard home loan, under guarantor home loans also borrows a sum from a bank and then repay it. Here, your guarantor’s equity basically acts as an added collateral in case something goes wrong. Hence, the bank would have the authority to take possession of it if your guarantor is also not able to meet the repayments.

Guarantors can also choose to solely guarantee some part of the loan. Hence, once you repay that share; the guarantor could be released from any risk pertaining to their property in case you tend to miss any repayments further ahead.

Who Is A Guarantor?

The spike in property prices and higher rents has made it difficult for many first-time home buyers. Saving for a deposit and then arranging a mortgage broker in Melbourne has become one big task. Guarantor loan advice can be one option for potential buyers.

A guarantor is someone who can provide additional security to your home loan. Most lenders will prefer the guarantor to be a person whom you know quite well – generally a parent, sibling, or grandparents. A guarantor becomes an important third party who when signs the lease, gives protection for credit.

Understanding How A Guarantor Home Loan Works

Saving a deposit is a strenuous job that takes time. A guarantor can become your gold ticket to get venture into the market quickly. You may need just a small deposit. No deposit home loans have become a rage because a guarantor proposes equity in their own home as additional security for your loan.

Why Do You Need A Guarantor?

A need for a guarantor may arise due to many reasons a landlord may see. Anything that is damaging related to your reliability and finance can become a reason that the landlord asks you to get a guarantor. To name a few of the reasons:

  • The bad credit scores
  • Bankruptcy showed in your credit report
  • Your rent history
  • Income proofs not meeting the standard requirement

The provision of a guarantor allows the landlord to sleep tension-free at night knowing it has the guard of a credit-worthy third party without thinking too much about renter insolvency.

On other hand, for first time homebuyers; a guarantor can act as an angel that will allow them to choose from a greater variety of home loans. To name a few other benefits:

  • Higher chance of your loan application getting approved by the lender
  • Many banks allow lending of a bigger amount based on the guarantor’s credit history
  • For people with poor credit history, a guarantor can be a boon before applying for loans

A guarantor is ideally the additional help needed to secure the apartment you desire.

Loan Guarantor Eligibility and Risks to Consider

To become eligible for guarantor home loans, you require a family member willing to act as guarantor for you. The said person should also be a house owner as their home equity will act as security for your first home loan.

It will be a very crucial decision if you agree to partner as a guarantor. Remember to weigh a few of the below-mentioned risks before you come forward to help someone.

  • If the renter is unable to keep up the repayments of their loan, the guarantor can be asked to pay off the home loan
  • Remember that missing a due payment does not only affect the borrower's credit scores but also impacts the loan guarantor’s credibility
  • Even if you feel your credit history as a guarantor is respectable, a series of missed payments can affect your ability to take out loans in the times ahead

Hence, anyone who is considering helping someone by being a guarantor should surely seek an autonomous legal adviser before taking this responsibility.

How Guarantors Are Helping First Home Owners   

The biggest advantage of having a guarantor is that can save thousands of dollars by avoiding the Lenders Mortgage Insurance (LMI). LMI is normally required in case of those home loans where you have less than a 20% deposit. This means the loan would be more than 80% of the property value. Although this insurance would cover the lender against the risks of loan defaulting, you will have to pay the premium.

The guarantee amount depends on the policies of the individual lender. The guarantor can demand to be released from the loan once you have built up equity in your property. The timeline to achieve this may vary depending on the original deposit, the number of extra repayments completed, and whether your property value has been appreciated over the period of time. Depending on the type of lender, one may be required to pay some kind of additional fee to release the guarantor.

Final words

The home loan market is quite extensive. Having a guarantor does not really affect the basic terms of a loan, but only assists in getting a positive outcome of your loan application. The Guarantors have been able to bridge the gap between renters and the landlords, but one must weigh the pros and cons of the situation before proceeding. Guarantor home loans have really created a process that eases the ongoing tension for all the involved parties.

Syandita Malakar
Syandita Malakar
Hi guys this is Syandita. I started Business Module Hub to help you all to post updated articles on technologies, gadgets. Although I love to write about travel, food, fashion and so on. I quite love reading the articles of Business Module Hub it always update me about the new technologies and the inventions. Hope you will find Business Module Hub interesting in various way and help you accordingly. Keep blogging and stay connected....!
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