Family members can act as guarantor by using a portion of their own home’s equity to help their children/sibling who don’t have enough savings, to cover the deposit for their first home.
Providing the family member is comfortable taking on joint responsibility regarding repaying the debt and signing a legal contract to say so, for some, this could be a great solution to achieving home ownership a little sooner. It also allows the First Home Buyer(s) the opportunity to take advantage of the Governments financial assistance whilst it’s available.
The guarantee can be limited to a specific amount which helps provide certainty and allows the guarantee property to be released, upon request, when there is sufficient equity in the borrower’s property.
Considerations
There are a few things to be considered before making this decision:
- Guarantor(s) will be signing a legal contract is an agreement to repay the loan if the borrower can’t meet their obligations.
- Independent financial and legal advice is recommended/expected to ensure all obligations and liabilities are understood.
- A Guarantor(s) can’t be released until there is sufficient or agreed equity available in the borrower’s property.
Advantages
There are certainly advantages with Family Guarantees:
- The applicant can maximise the amount they can borrow – up to 100% of the purchase price, plus costs such as stamp duty.
- It helps to avoid paying lenders mortgage insurance.
- It allows faster entry into the housing market and achieving the dream of buying a first home.
Gift
There is also another option available and that is a financial ‘gift’ to assist your children with a purchase. If it is a gift, you will be required to sign a statement declaring the gift, proving that it is not a loan.
In this scenario you can provide the financial help required for the purchase, without restricting your own property plans by attaching a family guarantee mortgage to your home.
Should you have any questions regarding a Family Guarantee or financial options available to support your children when buying their first home, please give your Mortgage Broker a call or contact us on 8300 8300 and ask to speak with one.
Disclaimer: The content of this article is general information and is not financial advice, nor is it intended to imply any recommendation or opinion about any particular financial product. It does not take into consideration your personal situation and may not be relevant to your personal circumstances. Please consider your own circumstances and seek professional advice.
