Buying a House with Your Parents as a Guarantor

The prices of properties in regional NSW have been growing steadily for the last few years. This growth reached 13% in 2021. While this is a positive development for sellers, it’s not a good sign for home buyers. For some people, the property prices may become so high that they won’t afford a house in the area. As a result, many of them team up with their parents to get a mortgage from a lender. If you are planning to use this route when buying a house, here are some things you should know.

Guarantor Home Loan

Lenders will often demand that a borrower provides some assets as security before they can receive a loan. If you don’t have such assets, you can ask somebody to offer their own assets. Once you have a guarantor, you will be able to access loans even if you have a negligible financial footprint. For instance, you can now access a mortgage without making any deposit. Nevertheless, the guarantor will have to pay the loan if you are unable to settle it.

A Parent as a Guarantor

When you became an adult, you probably swore never to seek financial assistance from your parents. However, your parents can be trusted and reliable guarantors as you try to buy your first home. By having a guarantor that you trust, you will preempt any looming financial hiccups. Moreover, your parents already know your financial situation and will not make any demands.

Criteria for Parents to Be Guarantors

Your parents must meet certain criteria before they can become viable guarantors. First, the guarantor must be the sole owner of the assets or have substantial equity to match the price of the house. The ownership percentage will vary from one lender to another and depends on the property’s market value.

If you don’t have a steady source of income, it may be challenging to make all repayments on time. As a result, your parents’ income should be large enough to settle those repayments when you are unable to. The cost of guaranteeing your mortgage plus the occasional repayments is substantial, especially if your parents are also catering to your living expenses.
The lending institution will also like to know your parents’ credit score. This is needed to determine whether your parents are financially responsible people.

Risks of Letting Your Parents Be Guarantors

While convincing your parents to be guarantors seems a straightforward move, you may be exposing them and yourself to a few risks. If you are unable to make your repayments as scheduled, the lender will take some unpleasant measures to recover their money.

First, the lender will sell your new home to close the mortgage. In some instances, the house’s value may have depreciated to a point where its market price is less than the mortgage cost. When this happens, the lending institution may go after the guarantor’s assets. This is something that could strain the good relationship between you and your parents.

Key Takeaway

Your parents have already played a big role in your life. They can continue playing this role by being your guarantors for a home loan. All you have to do is make sure they meet the criteria. Contact R & R Property for more information.

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