Guarantor Home Loans Sydney
Types of Guarantor Loans we can help with
Guarantor Loans for First Home Buyers
Sydney is particularly challenging for first home buyers, who face high rents and property price growth that can outstrip deposit savings. Guarantor loans can assist first home buyers in entering the market by reducing the amount of deposit needed, avoiding lender’s mortgage insurance, and getting them into the market earlier.
Guarantor Loans for Owner Occupiers
Guarantor loans are commonly used by borrowers buying a home to live in. The guarantor often secures only the portion of the loan above the 80%Â loan-to-value ratio. Once the borrower has paid down enough of the loan, or house prices have risen enough that there is sufficient equity in the home, this guarantee may then be removed.
Guarantor Investment Loans
Some lenders offer guarantor loans for investment properties in Sydney. They will often assess borrowing capacity more conservatively than for owner-occupied homes, taking into account expected rental income and vacancy rates, as well as the borrower’s financial circumstances and the guarantor’s available equity.
Limited vs Unlimited Guarantor Loans
A limited guarantor loan restricts the guarantor’s liability to a specific amount or part of the loan, rather than the entire debt. This means that only a certain portion of the guarantor’s own property equity is at risk in case of repayment default. An unlimited guarantee makes the guarantor responsible for the full loan amount if the borrower defaults.
How much can I borrow with a Guarantor Home Loan?
How much you can borrow depends on your income, living expenses, existing debts and credit history. In Sydney, where property prices are among the highest in Australia, many buyers aim for a 20% deposit to keep their loan-to-value ratio (LVR) at 80% or below and avoid paying tens of thousands of dollars in lender’s mortgage insurance (LMI).
Using a guarantor home loan can allow you to purchase with a deposit lower than 20%. By using the guarantor’s property as security, the overall LVR is reduced, helping avoid LMI and potentially allowing the purchase of a higher-value property.
Here’s an example:
Sydney property purchase price: $1.25 million
Estimated purchase costs: $60,000
Borrower’s deposit: $200,000
Total borrowing required: $1.11 million
Portion of lending being secured against the property being purchased: $1 million (80% of the purchase price)
Portion of the lending being secured against the guarantor’s property: $110,000. (The remaining loan required after the borrower’s $200,000 deposit is put down)
Estimated LMI payable: $0 (saving around $15,000 approx)
The borrower remains responsible for making repayments on both parts of the loan, so the lender will assess how much you can borrow based on your ability to service the total debt. The guarantor’s available equity and financial position will also be assessed before the loan is approved.
What is Our Guarantor Loan Process?
Step 1: Initial Borrower & Guarantor Assessment
We’ll gain an understanding of your overall financial position, what sort of Sydney property you’re looking to buy, and discuss likely changes that may affect your future circumstances. We’ll also review your guarantor’s property equity and financial position, and understand what support they would like to provide.
Step 2: Evaluate Your Borrowing Capacity & Guarantor Loan Structure
We’ll apply lender borrowing and guarantee criteria to assess what loan size you’ll be able to borrow, and what repayments you can comfortably afford. We’ll run the numbers under various scenarios, so you can compare the difference between borrowing yourself and through different guarantor equity and loan structures.
Step 3: Compare the Market for Competitive Guarantor Loan Options
We’ll review loan products and guarantor options from a range of bank and non-bank lenders, and identify options that suit the needs of both borrower and guarantor. Guarantors are required to seek independent legal guidance before entering into a guarantee, so this would be the time for the guarantor to make contact with their independent solicitor and book a time to have their role, rights and responsibilities clearly explained to them.
Step 4: Loan Pre-Approval, House Purchase & Loan Approval
We’ll check your loan paperwork is in perfect order and submit it digitally on your behalf. Once the lender has pre-approved your application, you can safely bid or make an offer, subject to final approval and valuation, within the agreed maximum pre-approved amount. Once you’ve agreed to a house purchase, we’ll handle the formal loan approval process, which includes having the purchase property and the guarantor’s properties valued. Once the lender has signed off on all aspects, we meet with the borrower to sign the paperwork. At the same time, the guarantor will receive their own documents, which they must go through with their legal representative to ensure their complete understanding before signing.
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Frequently Asked Questions
In Sydney, it’s almost always required that the home loan guarantor is an immediate family member, such as a parent, grandparent or sibling. The guarantor must usually own property with enough available equity to support the guarantee and also be able to meet the lender’s financial and credit requirements.
A guarantor uses the available equity in their own property as additional security for a portion of your home loan, allowing you to secure a home loan with a smaller cash deposit. By pledging the extra security, you reduce the loan-to-value ratio (LVR), which reduces the lender’s risk and enables you to avoid paying lender’s mortgage insurance. Effectively, it means you can obtain a home loan of a particular value with a smaller deposit – or a higher value property for that sized deposit.
Yes, some Sydney lenders will consider a guarantor loan with no deposit if your guarantor has sufficient available equity in their own property, fully understands what is expected of them in the worst event and is willing to provide this as security. As the borrower, you’ll still need to demonstrate that you can comfortably afford the repayments and budget for upfront costs such as stamp duty, conveyancing and government fees. The guarantor will also need to meet the lender’s financial and credit score criteria and be comfortably able to afford repayments on the guaranteed portion of the lending if the borrower is unable to pay. It is critical we make sure we aren’t putting the guarantor at an unacceptable level of risk.
A guarantor must seek independent legal guidance to have their role, rights and responsibilities explained to them before entering into a guarantee arrangement. The guarantor agrees to be responsible for the guaranteed portion of the loan if the borrower cannot meet their repayments. The guarantor does not make the regular loan repayments while the borrower is meeting their obligations. If the borrower defaults, the lender will generally first seek to work out a solution with the borrower. If that fails, the guarantor may be asked to make the missed repayments or pay the guaranteed security amount. Failing that, the guarantor may ultimately be required to sell their property to cover the secured amount, so we must take great care in assessing the impact on all concerned at the outset.
Yes. Many Sydney lenders offer limited guarantees, where the guarantor is responsible only for a specified amount or portion of the loan rather than the entire debt. This portion may be the 20% required to be secured in order to avoid lender’s mortgage insurance. The exact limit of liability will be set out in the guarantee documents.
Yes. Once the borrower has built enough equity in their property through loan repayments and/or property value growth, they can apply to have the guarantee released. This application would be subject to lender approval. Sydney property prices have a long-term upwards trend, but growth can be cyclic. As such, it’s important to keep an eye on property valuations and equity, to identify when guarantor removal may become possible.
In the instance that a borrower does not make their required loan repayments, the lender will usually first negotiate repayment with the borrower. If the loan remains in default and the borrower cannot repay the debt, the lender may ask the guarantor to cover outstanding repayments or pay the secured amount. If this cannot be paid, the lender may take legal action, and ultimately force a sale of the guarantor’s property.
Eligible first home buyers in Sydney can use a guarantor home loan while accessing NSW state grants and stamp duty concessions. For example, the $10,000 NSW First Home Owner (New Homes) Grant for purchasing brand-new or substantially renovated homes up to $600,000.00 or building new homes, provided the cost of the land and construction contract does not exceed $750,000.00. They can also potentially access a guarantor home loan via the First Home Buyers Assistance Scheme (FHBAS). Properties valued up to $800,000.00 are fully exempt from stamp duty, and a concessional sliding scale discount continues for properties valued between $800,000.00 and $1,000,000.00 while also using a guarantor home loan. However, the federal Home Guarantee Scheme (HGS) – which allows eligible buyers to purchase a home with a 2–5% deposit – cannot be paired with a guarantor loan. This is because the Australian government already acts as guarantor.