As Australian house prices continue to climb, the prospect of saving a deposit for your first home can be quite daunting. Fortunately, though, there is a simple solution – nominate a guarantor.

If you don’t have a sufficient deposit to obtain a home loan, you can secure credit through a “family pledge”. The two types of family pledges borrowers can access are: service guarantees and security guarantees.

As a first home buyer, using a guarantor enables you to: buy your first home sooner, or purchase an investment property, and borrow more than you may have been eligible for without guarantor assistance.

Less common than security guarantees, service guarantees require a family member to guarantee all repayments of a home loan and to be named on the property title. A major drawback of this approach, however, is that first home buyers will not be entitled to government grants.

Let’s assume, for instance, that the total loan amount you are seeking is $600,000. Within a security guarantor arrangement, you would be required to take on the debt of 80 percent of the loan’s total value. In this case, that value would be $480,000. As you are responsible for this portion of the home loan, the amount is in your own name.

The loan for the remaining balance (in this instance, $120,000) is guaranteed in your name and your guarantor’s name. This limits the guarantor’s liability, whilst providing added security for the lender. This means that mortgage insurance is unnecessary.

The more popular option among first home buyers is the security guarantee. Using this option, a relative or friend (generally, the borrower’s parents) uses the equity in their home to guarantee the borrower’s deposit.

This approach is a popular way to enter the property market. It works when borrowers do not have the required deposit, but their parents own a home. It’s a fantastic option, provided the borrower’s parents are confident in their ability to repay the loan.

To determine the perfect guarantor option for you, speak to one of our MFAA approved finance brokers.

If you’d like more information on securing guarantor finance, simply call or email the expert team at Mortgage Australia today.