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Using a guarantee can be a way to add more comfort to a home loan application. Of course there are risks associated with this method of helping with the deposit. Anyone who offers a mortgage backed guarantee stands to lose their home to a mortgagee sale should the guaranteed borrowers start to miss their home loan payments.
Some guarantees can be safer than others.
What is Equity? Equity is the difference between a mortgage and the property value. If the guarantee is to help with a deposit, it will need to be backed up by some equity. So the person giving the guarantee will have to have enough equity to cover deposits for both homes.
1. Limited Guarantee – A limited guarantee can allow a limit on the guarantee. Some banks are happy to limit the guarantee to only the required amount. So lets say a child has a 10% deposit but required only another 10%. The guarantee could then be limited to the dollar amount which would make up the ten percent. This would give a total of 20% equity for the new home.
2. Unlimited Guarantee – this can mean that the guarantee is for the full home loan amount and even can cover any future borrowings of the person being guaranteed. Of course this is not the ideal type of guarantee and less preferable to the guarantor.
Another option – split loan
Another way to help a family member to purchase a home could be to borrow the amount required to make up the deposit jointly against the home with the equity. This can than be used as a deposit and the rest of the funds can borrowed against the family members names alone.
This can add another layer of safety if things were to go sour, as the house being used for the equity can be safe as long as payments are made on the joint loan. Which would be of a much smaller amount. This can allow the joint loan to be paid quicker to reduce the time that both properties are linked.
Using a joint loan can be another way to guarantee many kids. This is as the first joint loan will only use part of the equity of the home so the rest is available for other kids or family members.
Contact us today for a free one on one discussion about what might suit your needs best.
