Housing affordability is a big issue in Australia, making it increasingly difficult for first home buyers to enter the property market. The first home buyers grant of $20,000 certainly helps, but is usually not enough for a deposit. Median house prices in Cairns are hovering around $400,000, which would require a 20% deposit of around $80,000! This is almost out of reach for most first home buyers!
Saving a large deposit can be very daunting and difficult to do when you're also paying rent! Without at 20% deposit, lending becomes a little bit more difficult and you would need to pay lenders mortgage insurance (LMI) which for a loan of $400,000 can be around $12,000!! An alternative is to ask a family member to become a guarantor on your home loan, which would allow you to purchase your first home with a lower deposit.
What is a guarantor home loan?
Many lenders allow a family member to help you buy your first home by providing additional security. The person providing this help is known as a guarantor and is generally limited to immediate family members. This would normally include a parent, sibling, or grandparent. The guarantor allows the equity in their own property to be used as security for your loan, allowing you to purchase your own property with less than 20% deposit. Having a guarantor is a good option for first home buyers that have the financial ability to make the monthly repayments on the loan, but just don't have enough deposit.
Benefits of a Guarantor
- you can purchase your property with less than 20% deposit
- you won't need to pay Lenders Mortgage Insurance
- you may have access to loans with a lower interest rate
What's the catch?
This sounds great doesn't it? Unfortunately, there are some risks involved for the family member willing to become guarantor for your home loan. Your guarantor will become liable for your home loan in the incidence where you default and can no longer make repayments. Although this is unlikely to happen, it is important for you and your guarantor to understand this potential risk.
How long will I need a guarantor for?
After you've built up enough equity in your home, your guarantor can be released from the loan. The time it takes to acquire enough equity in your home will depend on a number of financial factors such as the deposit you initially made, any extra repayments you made and whether your property value has increased.
Preston Finance and Insurance
Speak to us at Preston Finance and Insurance about options for home loans. We will investigate your options and work out whether you should buy now or wait and save. We can speak to you about the first home owners grant and offer advice about having a guarantor on your home loan. We will do all the research for you and find the most suitable loan for your financial situation, with the lowest interest rate
Contact us today:
Preston Finance and Insurance
1/15 Spence St, Cairns City QLD 4870