How Guarantor Loans Work.

As house prices continue to rise across the country, getting into a new home can be tricky for first home buyers. Fortunately, if you’re able to get the help of a guarantor, it might mean you can get into a home of your own sooner rather than later.

A guarantor is normally a close family member; in most people’s cases, that means their parents. By using a guarantor to get a home loan, you can potentially put down a lower deposit. However, it doesn’t necessarily mean you will be able to borrow more money.

A Guarantor Loan

In the case of a guarantor loan, a close family member puts up equity from their own property as a form of a deposit to help you to purchase a home. Most lenders require a home buyer to put down a 20% deposit to get a home loan. This reduces their risk in the event you’re unable to continue to pay off your home loan.

How Much Can I Borrow?

The big misconception with guarantor loans is that you can borrow more money. That is generally not the case, as your ability to borrow money is based on your ability to pay the loan, or your ‘serviceability’, as it’s called. Your serviceability is determined by your income and ongoing expenses.