Family Guarantee Loan
Saving that deposit to buy your first home can take forever and if you only have a small deposit you may need to pay Lenders Mortgage Insurance (LMI) which can be quite expensive. A Family Guarantee loan product represents an opportunity for borrowers with no or a low deposit to get into their own property sooner. These types of loans require family support through the provision of a limited guarantee using the equity in the family home as security for the loan.
Normally most lenders will provide a loan for 80% of the property you are looking to purchase without having to pay LMI. Subsequently as you maybe looking to borrow a higher amount to complete the purchase a family guarantee is provided in favour of the lender for the additional funds required to complete the purchase.
This amount can include the additional 20% of the purchase price and any associated costs and is normally structured as a separate loan secured against the family house subject to sufficient equity being available in this property. Given the complex nature of this type of transaction it is essential to understand the risks associated with a family guarantee and in all instances any guarantor must seek independent legal advice to ensure they are fully aware of their obligations should they enter into this transaction. Most lenders will also only accept direct family members as acceptable guarantors for this type of loan product.
