Do You Require a Family Guarantor as a First Home Buyer?
Getting into your first property is never easy, and with rising real estate prices, for some, it has become impossible to save enough for a deposit. Saving for a deposit of less than 20% can result in Lenders Mortgage Insurance (LMI) which may mean you will still need additional funds on top of the required deposit.
One potential solution which is increasingly becoming more popular with Australian households is the family security guarantee which can help you buy your first home using a lower deposit amount and avoid payment of LMI.
What Is a Family Security Guarantee?
The family security guarantee enables family members with enough equity in their home to guarantee the loan. The person providing the security is known as the guarantor.
The guarantor is not required to provide any capital or loan repayments. However, they accept the obligations associated with entering a guarantee arrangement.
If the security guarantee reduces the LVR to 80%, you can avoid paying LMI. This can save you valuable time trying to save for the required deposit and enable you to achieve your goal.
How Does a Family Security Guarantee Work?
Family members can support you in purchasing your first property by providing equity built in their property as a security, replacing your need to save up for a deposit. For example, should you need a deposit of $100,000 but you have only saved $50,000 up to this stage, if you have been assessed with the ability to repay the required loan amount, your family member can guarantee your loan and help you save the time required to build enough for a deposit. In addition, you can avoid having to pay LMI on your loan.
Over time, you will pay off the loan, and once you have built equity of 20% in yzour home, you can release the guarantee on loan.
Of course, a family security guarantee arrangement has certain risks to consider, and a decision on becoming a guarantor should be made only after a thorough understanding of the associated obligations.
Apply for your First Home Loan today!
As a first home buyer, you may be eligible for a duty exemption, concession and/or a grant. It is important you understand what options are available to you so that you can make the right decision. Our expert brokers here at Greenline Home Loans are here to help!