- Understand what Lender's Mortgage Insurance is and what you need to do to avoid it
- What is a Family Guarantee and how could it help you get your first home
- What do family members need to know before they become a guarantor
As a first home buyer it’s hard to get your foot in the property door. However, a Family Guarantee might be a way to get there sooner.
Saving for a first home loan deposit can feel like a marathon and just as you feel you’re getting closer to the finish line, house prices start rising, putting it further out of reach. But there may be another way to get there sooner with a Family Guarantee. Here’s how -
It starts with understanding a little about LMI
To get a home loan, a lot of lenders require at least a 20% deposit or they’ll ask you to take out Lenders Mortgage Insurance (LMI), which can cost thousands of dollars. LMI is a one-off payment which protects the lender from any shortfall if you can’t afford to meet your loan repayments. While you don't want to pay LMI, saving a 20% deposit can take so long, making your first home feel out of reach. That’s where a Family Guarantee could come in.
How does a Family Guarantee work?
A family member provides a Family Guarantee for your loan. This means equity in their home is used as security against your loan, reducing the amount of deposit you need without having to pay LMI.
For example, if your parents have owned their home for 20 years, they may have paid off their mortgage or be close to it. The family guarantee uses some of the value of their house as an additional security on your loan. There is no transfer of funds; the amount is simply nominated as security against your loan.
Understand what it means to be a Guarantor
Asking a family member to guarantee your home loan is not a favour to be asked lightly. It is worth explaining to your family that, at BankVic, once 20% of the property value is paid off, we release the family guarantee from that title. We also recommend that the family member seeks independent advice prior to acting as a guarantor, so that they are aware of the risks involved.
Want to know more about first home buying but don't know where to start find out more here.