HOW DO FAMILY GUARANTOR LOANS WORK?
Jim hates renting.
He walks into a bank to get a home loan.
The bank manager tells Jim that his income is fine. He could buy a house worth $350K BUT he has no deposit.
“Back away Jim! Go save up $35K and then we’ll talk”
It’s a “talk to the hand coz the face aint listenin” scenario.
It’ll take Jim 3 years to save up $35K. How will house prices look in 3 years? Higher Prices! Meaning more of a deposit! Will Jim EVER get his own place?
Not without sacrificing big $$, while surviving on Mi Goreng alone until he has his deposit. Sell a kidney Jim? It’s damn hard to save a deposit while renting!
OR are there other ways for Jim to buy his house without selling body parts?
YES! FAMILY GUARANTOR LOANS PEOPLE!
Family Guarantor (FG) loans can help you buy a house without a deposit.
Coffee Helps
*GUARANTORS MUST BE DIRECT FAMILY MEMBERS, STILL WORKING OR NOT RELIANT ON GOVERNMENT PENSIONS. MUST OWN THEIR OWN HOME OUTRIGHT OR ONLY OWE A SMALL AMOUNT.
Jim’s house price is $350K so lets roughly work out the costs to calculate his loan amount.
$350,000 – House Price
$11,935 – Transfer Duty (TAS as an example. Transfer duty is different depending on the state and territory!)
$1,500 – legal/conveyancing
$1,200 – Buffer/contingency for any fees that arise.
TOTAL = $364,635
Jim needs to borrow the full amount.
With FG loans, we recommend to split the home loan into 2 pieces like this:
LOAN 1 – Secured by Jim’s new house = $280,000
This is 80% of the property value. This is so Jim doesn’t have to pay Lenders Mortgage Insurance, saving thousands!
LOAN 2 – Secured by Jims parents house = $84,635
Loan 1 has nothing to do with Jims parents.
Loan 2 is the FG loan. Jims parents are Guaranteeing that if he stops paying, THEY’LL pay his loan back. If they cant, then Jims Parents home could be sold by the bank to repay it. That’s bad. So pay the loan back Jim!
PROS AND CONS?
Yay or Nay?
PROS
- No deposit/savings required
- No lenders mortgage insurance
- Better interest rates in some cases. Some banks charge lower rates when borrowing below 80% of your property value.
- Can pay of the FG loan faster if desired.
CONS
- Parents will have some paperwork to fill out!
- Mum and Dad can’t sell or refinance their home without permission from Jim’s bank (while the FG loan is there)
- Mum and Dad’s house could be at risk if Jim stops paying his loan.
TIP: Jim should have income and life insurance or loan protection insurance in place. Give Mum and Dad some piece of mind if something goes wrong. A good Financial Planner can help there.
THERE YOU HAVE IT!
If you believe you have the income to support a home loan and parents that are willing to help, then we can help.
Throw away your instant noodles, tear up your lease renewal and contact us!
Family… Isn’t it about time? 😉
Phone: 03 6244 4646 or email: jonathon@onestonefinance.com
Jonathon Coleman holds a Diploma in Finance and Mortgage Management and is a qualified Mortgage Broker/Planner. He has an Australian Credit Licence and has assisted thousands of clients in achieving their property goals over the past 12 years.