Using a Parent's Property as a Security Guarantee: What First Home Buyers Need to Know
Buying your first home can feel like a massive leap, especially when saving a big enough deposit is holding you back. For some first home buyers, a family security guarantee may help them enter the property market sooner, without needing a parent to gift cash directly.
What is a security guarantee?
A security guarantee is when a family member uses the equity in their property to help support your home loan application. This does not usually mean they are handing over money, instead, they're offering the lender additional security, which may help you borrow with a smaller deposit and reduce or avoid Lender's Mortgage Insurance.
Who can be a guarantor?
Most lenders prefer an immediate family member, commonly a parent or step-parent. Depending on the lender, siblings or grandparents may also be considered. The guarantor will usually need to own property in Australia with enough available equity.
Why first home buyers consider a guarantor loan
- Buy sooner, rather than waiting years to save a larger deposit.
- Avoid Lender's Mortgage Insurance, saving thousands of dollars.
- Keep more of your own savings for moving costs, furniture or an emergency buffer.
- Access a loan structure that wouldn't otherwise be available with your current deposit.
What are the risks?
If the borrower can't meet loan repayments, the lender may seek repayment from the guarantor for the guaranteed portion. It may also affect the guarantor's future borrowing capacity. It's important the guarantee is limited where possible, and guarantors should get independent legal advice.
Can the guarantee be removed later?
Yes, in many cases, once there's enough equity in the property (from loan reduction, value growth, or both), the borrower may refinance or ask the lender to reassess and release the guarantor, subject to approval.
Read more about family guarantee home loans, see our first home buyer guide, or check your borrowing power before you talk to your parents.
A family security guarantee can be a helpful way to enter the property market sooner, but it needs to be set up carefully. Get in touch with Mesh Finance for a no-obligation chat.