Parental Guarantee
Relying on Your Parents? We've Got You Covered!
At Finance Brokers Tasmania, we understand that saving for your first home has never been harder, especially with the current price or real estate in Tasmania. A parental guarantee may help make your dream of home ownership a possibility.
Your journey to buying your first home with a parental guarantee.
Are you dreaming of buying your own home but finding the financial hurdles too daunting? Look no further! We're here to guide you through the process of owning your first home with the assistance of a parental guarantee.
With a parental guarantee you can:
- Overcome Deposit Constraints: Lack of a substantial deposit is a common barrier for many first-time buyers. A parental guarantee allows you to secure a home loan with a smaller or no deposit at all, leveraging the equity in your parents' property.
- Avoid Lender's Mortgage Insurance (LMI): Typically, lenders require LMI if your deposit is less than 20% of the property value. With a parental guarantee, you can bypass this expense, further reducing your upfront costs.
How does it work?
There is more than one way that your parent/s or a family member can assist you get into your new home sooner:
Through an informal cash loan (or gift)
This can be done via your parent's savings or refinancing their home loan and accessing cash this way. Along with your own savings, this will give you a healthy deposit, reduce the amount you need to borrow and potentially eliminate the need for lender's mortgage insurance (LMI).
A security guarantee or Parental Guarantee
A guarantee allows a family member to use equity from their own home (or holiday home) to provide additional financial security to your lender. This may enable you to borrow the total purchase price, meaning some lenders will not require you to have any savings or a deposit.
With both of these options, you will still need to be able to show the lender that you can service the loan. This means you will need to demonstrate to the lender that you can afford to make the repayments on your mortgage once you have taken care of your ongoing expenses. To find out more, check out our blog Get into your first home sooner with a parental guarantee!
Unsure about Renting or Buying?
If you're not sure whether you're better off renting or buying, have a play with our Rent vs Buy Calculator to explore your options.
Your Questions Answered:
You may have questions about a Parental Guarantee and how they work. Read on to find out the answer to some of the most commonly asked questions!
Do I still need a deposit with a parental guarantee?
A parental guarantee may allow you to borrow up to 100% of the purchase price including associated costs. However, it's important to remember that a parental guarantee only provides additional security. You will still need to meet the lender's serviceability calculations. To find out how much you can borrow based on your monthly income and expenses, check out our Borrowing Power Calculator.
Do my parents need to own their home outright?
No, your parents can still have money owing on their home loan. If this is the case, it is generally preferred that both loans are with the same lender.
Will my parents be liable forever?
A parental guarantee is a limited guarantee, so once your loan drops to a suitable level of LVR (loan to value ratio), your parent's liability can be released. This is generally when the loan balance falls to below 80% of the value of your home.
Will this impact on my parent's ability to borrow money or sell their property.
Yes, this is an important consideration when applying for a parental guarantee. If parents have used their property to assist you get into a home loan, this will impact their own lending capacity and their ability to sell the mortgaged property. This is why it is important for all parties to speak with our mortgage brokers about the implications of a parental guarantee.
