Is it possible to buy a house even when you have not yet established your financial status?
The good news is yes, it is possible to purchase a house even when you do not have a lot of money in the bank. This can be done with the help of guarantor loans.
What are guarantor home loans?
These are type of homes awarded to people who have another person act as a guarantor for the loan. It sort of secures the loan for a certain borrower and helps increase the chances for approval. This is done when a borrower does not have enough money saved in the bank to cover the deposit or not have a huge salary.
What happens is another person, usually the parents or any family member, basically tells the lender to give the borrower the money and they are going to ensure that the loan is going to be repaid. The assurance can be in the form of a security taken out of the guarantor’s property.
Typically, first-time home buyers are the ones who take advantage of these loans. They are usually individuals who have little to no money for the deposit.
This is great because it offers a lot of people the opportunity to become homeowners despite their lack of money. With these loans, people who have someone willing to offer assistance will still be able to obtain a loan.
Compared to conventional mortgages, these loans are easier to qualify for. If a certain borrower, who does not have a huge savings, is to apply for a conventional loan, there is a very little chance he would even be considered.
Guarantor home loans are perfect for cash-strapped individuals who have a parent or any family member willing to help them out. In a sense, these are similar to family pledge home loans.
A person who acts as a guarantor for somebody else has to be aware of all his or her obligations. They need to be completely sure of what they are doing because there is a huge risk that comes with offering a security for someone else’s loan.
In the event the borrower fails to meet the monthly mortgage payments, the guarantor is going to be held liable. The guarantor will need to pay the loan. Selling the property is an option for them as well.
There is a huge level of trust required when securing someone else’s loan. This is probably why most of the people who act as guarantors are family members (mostly parents). Guaranteeing a loan for someone is no joke. It could end up as a serious problem when the borrower is not able to repay the loan.
Despite the risks it entails, a guarantor loan is still something a lot of people want to avail of because it offers a lot of benefits. Among them are the following:
- LMI or lenders mortgage insurance is waived
- It is possible to borrow as much as 100% of the property value
- One does not need to have a lot of money saved in the bank
- It’s easy to get approved for this type of loan
There is one way to make sure that everything goes well and a borrower gets the money as quickly as possible—get help from mortgage brokers.
Mortgage brokers are very helpful in processing these types of loans. They know which lenders approve guarantor home loans and which ones offer the best rates.
It is in every borrower’s best interest to seek out the help of mortgage brokers first.