Hi,
Just wondering how a guarantor to a loan gets assessed. Is it based on the guarantor's income/borrowing capacity. e.g. if a guarantor could borrow $300,000 in their own name, would it mean that the guarantor could guarantee a $300,000 loan for say a family member. How does it work normally work? Or how do you know how much can be can be borrowed by that family member with the help of a guarantor.
Would that person borrowing with the help of a guarantor be able to get the FHOG? Does the person purchasing the property/applying for the grant need to show that they can make the repayments by themselves, or is it sufficient for the guarantor to be making the repayments even though the property and mortgage would be in the person's name and not the guarantor's.
My parents are thinking about helping me with buying my first home (and would be applying for the FHOG), I would be living there, and as my current work and income is part time (1-2 days a week), I could make a small repayment to the loan, and my parents would agree to make loan repayments (monthly) to the remainder of the loan (a large part of it) until I move to full time work in say 2 years time. Would I be able to qualify for the FHOG like this? I know the application form does not ask who makes the repayments, but from memory it asks has anyone assisted you with finance.
Also with the deposit, would I need to prove that I have paid it out of my own money, since my parents would agree to pay it.
Also with the guarantor way of getting a loan, would they look at my low part time income as well, or would it not matter, or is it better if I could increase my part time income slightly in the future, would it be easier to obtain a loan.
Also what would be the LVR for a guarantor type loan, would we be able to get 80%, or maybe 95%+
If you have done this or know someone who has, then your insight would be very helpful.
Are there alternative ways aside from via a guarantor? I do know of one way which is to have my name as 99% and parents name as 1% then stat dec to OSR that parents name on title was only for loan approval, and then OSR would need to assess it, but there is no 100% certainty with this method.
Many thanks for you help.
Magic
There are a couple of varying ways the Family Guarantee style loan works depending on the individual lender:
1) The Guarantor will only need to Guarantee say 20% of the purchase price plus costs and therefore only need to show income evidence to support this amount. This assumes that the borrower can of course support the other 80% on his / her income.
In some case the lender will allow the property to be in the borrowers name solely thus qualifying for the First Home Owners Grant and the Guarantors will be separate.
2) The Guarantor is required to Guarantee the entire loan and in essence becomes a co borrower. This means the Guarantors other loans and liability will be taken into consideration and a mortgage fby way of a cross guarantee will be taken on the Guarantors property. Normally a first mortgage only is required and this can cause problems if the Guarantor wishes to move, refinance or borrow again during the period of the Guarantee.
You will not be able to hold the property as Tenants in Common with the Guarantor and qualify for the Stamp Duty concession or FHOG so will need to be extremely careful here.
Why not get your parents to take out a loan equivilent to 20% of the purchase price and then gift this to you.
This will mean the property will be in your sole name without the need for a Guarantee and will not disqualify you from claiming the relevant Grant and SD concessions.
Also will free up your parents to enable them to do their own investing without being tied to providing a guarantee.
Richard Taylor | Australia's leading private lender
If a person is on title they are not a guarantor but a co-owner. The FHOG is only available if all owners qualify.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Would it be possible to get closer to 80% LVR on the basis of the guarantor alone, or is it generally limited to 20%?
Also, if the guarantor guarantees a loan, and next time they wish to borrow for another property, is the repayments (20% or 100%???) of this property part of the calculation for their cash flow/liabilities when applying for another loan?
For the cross guarantee, is it a second mortgage on the guarantor's property? That would have first mortgage consent issues. If the guarantor's property is free and clear, then first mortgage over that could be done. But it is probably better as Qld007 said to have them gift me 20% or 80% instead from cash or equity (and I repay over a number of years).
Magic
Dont worry about first mortgagee consent issues as many lenders on taking the first mortgage only and therefore would want to refinance your parents security which as i mentioned gets very very messy.
A simple loan on their security which in turn they gift to you and you then make payments on their loan is a lot simplier and easier for both parties.
The concept of a Family Guarantee is great on theory alone however practically it just often fails to work.
Richard Taylor | Australia's leading private lender
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