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THE RISK GOING GUARANTOR

It is a risky business asking a parent or your partner's parent to go guarantor on your mortgage. It is even riskier if you are being asked to be a guarantor. 

Here becomes the problem: 

You cannot seem to get a loan because you may not have enough credit history. (As this may be your first property purchase). You have limited savings and to a financial institution, it would be deemed a risk to lend money to you. 

Why? 

Because if you get into trouble (i.e. lose your main source of income), the financial institution could lose a lot of money from your loss of payments.

It may be recommended that if your parents/guardians have a good-sized portfolio or equity in their home, that it may be enough to approve you for your loan.

Here is where it can be tricky. 

If you cannot pay the repayments one month, who will? The guarantor will be advised and will be asked to make payment. Do you see how a lot of parents may not be keen on this idea? What if you give up wanting to own a home and just make the parents (who already have thier own mortgage mind you) pay for it?

If you become a guarantor, you do not have any rights to own the property or items bought with the loan.

This is what can happen if things go bad: 

  • You (the guarantor) may end up with a bad credit record if you and the borrower cannot pay back the loan. This will make it hard for you and the borrower to borrow money for several years. 
  • If the title deeds to your home is security to guarantee someone else's loan, you may lose your home if you do not pay the loan you guarantored for, if the borrower cannot pay it and you cannot pay it. 
  • Not only may your money be lost, assets such as your car may also be sold to help pay the debt. 
  • You also may be made bankrupt by the credit provider.
  • And do not even get started on the now strained relationship you have with the borrower due to everything that has happened.  

It is up to you to decide to become a guarantor or not, just make sure you know all the facts first. How will the borrower guarantee you they will be able to make the repayments? 

If you do say no to going guarantor, tell the person the reason and offer other ideas on how to become more financially stable to the financial institution. If you do want to help, contributing to their initial deposit to bring down the home loan, would be of great assistance for any new home owner. 

Other tips to help for those who cannot get a loan is by suggesting to the borrower to ask the financial institution, how much could they borrow? Maybe they just need a lower starting point, rather than setting their heights on something they cannot afford. Help them with their budgeting, to show them how to save and how to purchase lower sized investments. This may help in building their portfolio as well as their initial deposit. 

Remind them to start on a smaller scale. Once they purchase their first home and when the market rises, equity builds and they may be able to purchase a bigger sized property. Once they have proven to the financial institution that they can make regular repayments and stick to a budget etc from their initial smaller sized mortgage. 

If their job is temporary or on a contract, they may need to find a more stable/permanent role to help with their application.

There are many ways for individuals wanting to buy their first property. Speak with our Mortgage Managers to discuss all your options to help purchase your next property.

Call today on 1300 799 266 or email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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