If you haven’t saved a deposit but can afford home loan repayments, then there could be a way to buy. How? Well, a type of loan allows you to borrow up to 105% of a home’s value. Let’s look at this loan type now.
Usually, a lender will ask for a 20% deposit. So, that they reduce their risk. However, if you don’t have a deposit, then you can apply for a guarantor loan. A guarantor loan uses an asset, usually real estate, to secure a home loan.
The amount you can borrow under a guarantor loan depends on the type of borrower you are. Borrower types are as follows:
First home buyers – Those looking to buy their first home can borrow up to 105% of the property value.
Home builders – Borrowers wanting to build a new home can borrow up to 105% of the home and land costs.
Refinancers – People looking to refinance can borrow up to 100% of their home’s value.
Debt consolidators and purchasers – Persons wishing to roll all their payments into one, and buy a home can borrow up to 110%.
Investors – Folks wishing to borrow to buy an investment can borrow up to 105%.
Of course, these amounts may vary from lender-to-lender. Therefore, you’ll need to ask before taking out a guarantor loan.
Guarantor loans enable you to borrow the full property purchase price. Although, you will still need to have some genuine savings. Often, the savings will need to be 5% of the acquisition price. For instance, if you’re looking to buy a property worth $300,000, then you’ll need $15,000 to cover this need.
Lenders ask to see genuine savings, so they can verify your ability to manage money. Subsequently, saving over six months, or more, shows you can budget and build wealth. Some lenders may also consider rent repayments as genuine savings.
Most lenders will consider owner-occupied guarantor loans. However, only a handful are interested in investment guarantor loans. Several of these lenders will consider an investment property but are not interested in multiple properties. Hence, if you’re looking to build a portfolio, then you may need to consider other options.
Why? Well, when the guarantor secures multiple properties, they are assuming the risk. Yet, the borrower makes all the profit. Therefore, a lender views this as too high a hazard.
There are four main types of guarantees available for a guarantor home loan. These are as follows:
Security guarantee – Also known as an ‘equity guarantee’, this assurance uses real estate as security. The property offered as security is either owned wholly or under a mortgage. If already mortgaged, then a second mortgage covers the portion required as security.
Security and income guarantee – Friends, acquaintances or family members can secure the loan using the property and their income. While the property the asset secures the loan, the income proves the loan is affordable.
Family or parent guarantee – A family member or parent guarantees the loan using their real estate assets as security. Often assessment of this guarantee is case-by-case.
Limited guarantee – This guarantee covers part of the loan, rather than the full amount. As such the guarantor only gives enough security to cover a part of the loan to reduce their liability.