Thinking of going guarantor for a family member? Do you need to find a guarantor in order to get a home loan?
You Want To Be Guarantor
Do you realise that you become responsible for the loan if the borrower cannot repay the debt themselves. Becoming guarantor means so much more than just being a witness or providing a reference so think carefully before agreeing.
Why are you being asked to be a guarantor? Is there a bad credit history? Before doing anything, think about the reasons you are doing this and if you believe it is a mature decision for both parties? The reality of acting as guarantor for a bank loan, is that the bank can demand repayment from the guarantor. This means if you listed your home as security, it could be at risk and anything else you listed as a security can be taken and sold to pay the debt.
You Need A Guarantor
If a lender has asked you for a guarantor in order to approve a home loan for you it is probably because you are unable to fulfil the lending requirements that are currently in place. This is usually due to a lack of deposit, lack of income documentation or bad credit history.
By securing a guarentee for your mortgage (usually a parent) you improve your security against the loan and the lender is more likely to approve your application as equity requirements have been met. A lender will be reassured that there is a guarantor in place in the event that you struggle to repay the loan.
If you wish to have your existing lender release a guarantor in the future then you must meet the lenders requirements at the time you wish to organise the release. So you need to show an improvement in your credit file, or show reduction in debt, or prove an increase in property values. Some lenders will take a fresh application to reassess their risk before allowing the release of a guarantor.
The release of a guarantor is totally at the discretion of your current lender at all times.Even if you are considering refinancing with another lender in your own name, ensure you know the costs involved to refinance. You should regularly discuss your situation with your mortgage broker who can look at current lending requirements and help you consider the need for a guarantor presently and into the future. Call and talk to a local mortgage broker on 1300 787 665.