A family member can use equity in their own home to help you buy with a smaller deposit. I explain how it works for both of you, including the risks, and compare lenders that offer it.
A guarantor loan can help you buy sooner. It also creates real obligations for your guarantor, so it needs to be understood by everyone involved.
The guarantee is extra security for the lender, so you may be able to borrow more of the purchase price.
With a guarantee in place, many lenders do not charge Lenders Mortgage Insurance, which can save a significant amount.
Once your loan is paid down or your property grows in value, the guarantee can often be released.
A plain-English overview of family guarantee loans.
Your guarantor, usually a parent, offers equity in their property as extra security for your loan. They do not hand over money, and they do not usually make your repayments.
Most lenders use a limited guarantee, where the guarantor only guarantees part of the loan, often the portion above 80% of your property's value. Each lender has its own rules about who can be a guarantor and how much can be guaranteed.
If you cannot make your repayments and the property is sold for less than the loan, the lender can ask your guarantor to pay up to the guaranteed amount. If they cannot, their own property could be at risk.
A guarantee can also affect your guarantor's ability to borrow for themselves while it is in place. That is why lenders usually require guarantors to get independent legal advice, and why I talk it through with both of you.
Once you owe less than a certain share of your property's value, through repayments, growth in value or both, you can usually apply to have the guarantee removed. The lender will normally need a new valuation.
A guarantor loan is not the only way to buy with a small deposit. Government schemes such as the 5% Deposit Scheme may suit you better, and I cover them on my first home buyer page.
A pre-approval helps you know your budget either way.
We talk about your deposit, income and plans, and whether a guarantor loan or another option suits you better.
I make sure you and your guarantor understand how the guarantee works, including the risks.
I compare lenders that offer family guarantees and prepare the application for you both.
I deal with the lender and stay with you through to settlement, and later help release the guarantee.
Have a free, no-obligation chat. Your guarantor is welcome to join us.