No Deposit, No Guarantor Home Loans Debunked
While “no deposit, no guarantor home loans” style products are often spruiked in the finance industry, it’s important to separate fact from fiction.
Once upon a time, a single person or couple could live comfortably while saving for a home loan deposit, and faced little obstacles in purchasing their dream property. However, with the cost of living skyrocketing and Australia’s property pricing currently sitting at record highs, the “Great Australian Dream” is a concept becoming increasingly out of reach for many first home buyers.
As such, it’s easy to understand why many people are getting creative with their attempts at cracking the property market. Whether it’s moving home to save, taking advantage of government initiatives or even considering properties that don’t resemble anything like you envisioned, people are making compromises as a means to purchase their first home. However, with these authentic methods come a few myths as well, such as products that advertise “no deposit, no guarantor home loans”- but do they actually exist?
Unpacking The Myths Linked To No Deposit Home Loans
While “no deposit, no guarantor home loans” often get confused, the reality is that buyers generally need to make a choice between one or the other – meaning that you either need to have a deposit, or access to a guarantor.
In simple terms, guarantor home loans are mostly quite similar to a standard home loan. The major point of difference is co-signing a mortgage with a selected guarantor – commonly a parent or guardian – even though they have no rights over the property itself. While guarantor home loans increase your equity and chances of approval because you have someone to “back” you financially, it does come with some risks. In the event that you should default on the mortgage, the guarantor is responsible for paying it back – making it quite the responsibility and a decision not to be taken lightly.
Should the buyer in question not have enough funds saved to meet the full 20% deposit, going down the path of a guarantor loan is a popular option to avoid the extra cost of Lenders Mortgage Insurance, otherwise known as LMI. Depending on the lending institution you apply with, it may be possible to borrow over 100% of the purchase price of the property to cover added fees as well. The guarantor doesn’t have to commit to the full term of the loan – most only secure part of the loan (called a Limited Guarantee). Many guarantors have the option to only “cover” the buyer until they have paid back the 20% deposit minimum, or until their property value grows so that the loan balance is under 80% of the property value, after which time their responsibility ceases.
In a nutshell, this method is how a growing number of first home buyers are purchasing property with little or no deposit. However, without a guarantor at your disposal, it’s simply not going to happen. A bank needs to see that you’re disciplined enough to save for a deposit, or that you have someone with the ability to financially back you in the event that you default. While it may not necessarily be considered fair for those without access to family members in the position to be a guarantor for them, it does present a way to get your foot in the door of the property market and stay ahead of the increasing cost of living in Australia.
Partnering With The Home Loan Professionals
Navigating the complex world of home loans as a first home buyer has long been regarded as stressful, frustrating and time consuming – but if you can find the right advice on how guarantor home loans work, then the good news is that it doesn’t have to be.
Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing over 2,000 Queenslanders with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.
If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.