What is a family guarantee?
A family guarantee can help if you are a bit low on deposit. An asset owned by your parents can help secure part of the home loan you intend to get.
Assets can come in the form of:
- equity in a property (such as their home or an investment property, for example) or
- cash that they are happy to see in a term deposit in the bank
These can be particularly beneficial in saving you thousands of dollars as no lender’s mortgage insurance is payable!
When choosing to use a specific asset as security for your loan, it is extremely important that you and your family understand that this asset will be tied up whilst the loan is in place. As a result, it will not be able to be sold or refinanced with ease. Releasing the guarantee as time goes can be possible as the repayments to pay down your home loan decrease and the value of your home increases.
Are there other options?
Your family can also help by providing support in the form of a non-refundable cash gift. Your family must be willing to support this gift through a signed declaration letter for the bank, stating it can be used towards the deposit of your home purchase, and is indeed, non-refundable.
When considering this approach it is important to be aware that since you may still be borrowing more than 80% of the value of the property, you may still have to pay for lender’s mortgage insurance.
The bank might still require you to prove your ability to save money through what we call “genuine savings”, which can be achieved by showing you have actively been saving on a weekly, fortnightly or monthly basis, have been renting from a landlord with a property manager meeting all your rental commitments, or have received a cash gifts from your parents which has been sitting in your account for at least three months.
Learning how you can be in the best position for house price negotiation can also be a great idea, as this may help bring a property you are after within your purchase capacity.
Using another property as security to purchase your first home
Our team at Rise High recently helped a client purchase their first home by using another property as family guarantee! Learn more about this process and the fantastic outcomes Adam achieved for our clients!
Ultimately, having a qualified mortgage broker with your best interest at heart will ensure you achieve the best results! If you would love to receive personalized advice from our team, please reach out to us today!