Family Guarantee Home Loan

Family Guarantee Home Loan for Home Buyers

JFS Financial Strategists are on top of hundreds of successful home buyers who cracked the housing market even with little initial deposit. You can leverage your family property’s equity to compensate with the initial deposit and even skip LMI fees using a family guarantee.

We’ll also take you through several lenders and recommend preferable loan rates for you and your family to ensure you choose what’s best for the entire family.

What is a Family Guarantee for Home Loans?

A family guarantee is loan security provided by your immediate family member (typically your parents) to reduce your home loan’s Loan to Value (LVR) ratio.

So instead of providing a higher loan deposit, you can borrow a higher loan amount against the equity in your immediate family’s property or investment property. This can also help you avoid paying for Lenders’ Mortgage Insurance (LMI).

Hence, the bank or lender can now mortgage your family’s property, turning it into loan security, allowing for a lower LVR home loan with no LMI.

When do I Need a Family Guarantee?

A family guarantee is most useful for your home loan when:

• The property is highly-priced, and/or you are qualified as a high-income earner.
• Your savings cannot meet the 20% deposit and processing/stamp duty fee.
• Your parents don’t rely on welfare and are, if possible, financially independent.
• Your parents don’t have any outstanding debt or have a considerably low debt on their home or property that you’ll use as loan security.

How do My Family and I Qualify for a Family Guarantee?

Most banks and non-bank lenders will assess the following factors to determine if you qualify for a family guarantee home loan:

• Your personal borrowing capacity
• Equity on your parents’ property
• The bank which holds the existing mortgage for your family’s property (if any)
• Your parent’s income and financial strength
• How do your parents pay off the outstanding debt should your lender claim the guarantee on loan default.

Think those factors through and do a quick self-assessment as they considerably impact your application strength. We can also give you a preliminary evaluation and work together to maximise your borrowing power to reduce your LVR and avoid paying for LMI.

How Can I Tell If the Guaranteed Property Has Enough Equity?

Banks usually look into the property’s current loan standing and may require you to submit a valuation report from an independent party to evaluate the LVR for your home loan. 

Suppose the total of their outstanding loan plus the borrowings from the family guarantee loan are less than 80% LVR of the property. In that case, your parents’ property will qualify as a security.

But note that the LVR will vary among banks. It helps to have a team of financial strategists to help you find lenders that offer at least 80% LVR with competitive rates.

Which Family Member can Provide a Family Guarantee?

Most banks will accept the following guarantors for a family guarantee home loan:

• Parents
• Spouse
• Grandparent
• Guardian
• Sibling

What are the Steps in Securing a Family Guarantee Loan?

Some banks have fewer or more steps before you can secure a family guarantee loan. But these are the steps you need to know about family guarantee home loan applications:

• Ensuring that your parents’ property qualifies as a family guarantee
• Checking if the guarantor property has enough equity
• Identifying the family guarantors
• Evaluating the guarantor’s (your parents’) financial position
• Discussing with the guarantors the legal impact of providing a home loan family guarantee

Moreover, some banks will ask your parents or guarantor to seek legal and financial advice so that they will fully understand the responsibilities of a home loan guarantor.

To gain confidence throughout your family guarantee home loan application, feel free to speak with our specialists at JFS Financial Strategists today.

Contact us to see how we can help you secure a family guarantee home loan and make your dream home a reality.