If you are looking to invest in property either to live in or as a source of rental income, but you don’t quite have the capital you need to invest in the asset of your dreams, you might consider investigating a guarantor loan to ensure you have the deposit you need to buy a house. A guarantor loan uses the equity in a third party’s property as a deposit for an additional property. By using some of the value of the former home to acquire the capital needed for a deposit, you present collateral to the bank which they can approve as sufficient to sustain the loan.
Who Can Guarantee A Loan?
Most banks will allow a loan applicant’s parents or guardians to put down their equity as collateral on a second home loan. The parents or guardians will have to sign paperwork which allows the bank to repossess equity in the home (own a share) in the event the loan applicant is unable to pay back the loan in full. Loan guarantors must disclose any loans they have been guarantor for when applying for additional finance themselves and their guarantorship will be taken into consideration when evaluating the strength of their loan application.
Pros and Cons Of A Guarantor Loan
The advantages of a guarantor loan are stacked in the favour of the person initially seeking the loan. They are able to secure a loan without a deposit and gain an asset which will appreciate in value in the future. They have saved themself the trouble of saving up enough to pay for a deposit on an owner occupied house or investment property and instead are leveraging their parents’ wealth to start their own property portfolio.
The disadvantages of a guarantor loan sway in the direction of the guarantor, who is potentially risking their house (and other assets) to pay for a house they won’t own. A guarantor is responsible for the entire value of the loan plus interest, so might lose their house or any other assets used as collateral if the person getting the loan doesn’t pay it back in full. Being a guarantor could prevent a person from acquiring other finance themselves and could lead to a bad credit report. Finally, it can damage the relationship between guarantor and guarantor’d in the instance the loan is unable to be paid in full.
Want To Know More? Contact APM Global
Contact APM Global for all enquiries regarding property acquisition or sales in Melbourne. We work hard to ensure you receive the best financial outcome no matter if you are buying or selling. We take a consultative approach enhanced with a combined 100 years of experience when it comes to managing your expectations in the property market. Call us today.