Saving for your first home can feel impossible when property prices in Melbourne keep going up. That is where using a guarantor can change everything. With the right advice from a good mortgage broker in Melbourne, it could be your shortcut to buying your first property much sooner.
Let us break down exactly how it works in simple terms.
What is a Guarantor?
A guarantor is usually a parent or a close family member who offers part of their own property as extra security for your home loan. Instead of giving you cash, they use the value in their home to help you cover the gap in your deposit.
This helps you borrow more and often avoid paying expensive Lenders Mortgage Insurance which can save you thousands.
Let us break down exactly how it works in simple terms.
How a Limited Guarantee Works
The good news is that most guarantors only guarantee a portion of your loan. They usually cover the shortfall needed to reach a 20 percent deposit. This way, their responsibility is limited and they are not tied to your entire home loan.
For example
You want to buy a home in Melbourne for six hundred thousand dollars.
You need one hundred and twenty thousand dollars for a 20 percent deposit.
You have saved forty thousand dollars.
Your guarantor would only secure the missing eighty thousand dollars. This is called a limited guarantee and it reduces their risk.
Once you build enough equity in your new home, the guarantee can usually be released without much hassle.
Bonus for First Home Buyers: Borrow Up to 107 Percent
Many lenders allow you to borrow up to 107 percent of the property value if you use a guarantor. This means you can borrow the full purchase price plus extras like stamp duty, legal costs and moving expenses. It is a real game changer for first home buyers in Melbourne who would otherwise need years to save enough.
Real Example: Raj’s Story
Raj was a first home buyer living in Melbourne’s west. They found a two-bedroom unit in Yarraville for eight hundred and eighty thousand dollars but only had thirty five thousand dollars saved.
Instead of waiting longer, Raj’s parent offered a limited guarantee using the family home. This helped Raj avoid paying thousands of dollars in Lenders Mortgage Insurance and buy their home sooner.
Six years later, after the property grew in value, Raj refinanced and removed the guarantee. Their parent’s home was never affected financially. It was a smart move that saved money and helped Raj stop renting earlier than planned.
Important Things Every Guarantor Should Know
It is very important that any guarantor considers getting independent legal and financial advice. Banks may require it to make sure the guarantor fully understands what they are signing up for.
If you miss repayments, the guarantor can be forced to cover the guaranteed amount. In the worst case, they could even be asked to sell their property unless the debt is repaid first.
Different banks also have restrictions around what types of properties can be used for guarantor loans. Some will only accept metro properties while others allow regional homes too. Policies vary between lenders so it is crucial to choose the right one.
This is where working with an experienced mortgage broker becomes so important. We know the rules across different lenders and can find the right fit for your situation.
How What If We Finance Can Help
At What If We Finance, we have helped many first home buyers across Melbourne over the past twenty years use guarantor loans to buy their homes. We know which lenders offer the easiest policies, who needs the least paperwork and how to keep the process simple.
As your mortgage broker, we help you
– find the right lender
– set up the guarantee with the minimum risk to your family
– structure your loan so you can release the guarantee as quickly as possible
We believe the home buying journey should be exciting and stress free, not confusing and overwhelming.
Ready to Get Started?
If you are a first home buyer in Melbourne thinking about using a guarantor, let us help you take the next step. With the right advice and a little support, you could be holding the keys to your own home much sooner than you think.
Contact What If We Finance today and let’s get you moving into your first home.
