What she could not understand was why she couldn't get finance. The banks she had been to had told her that she couldn't qualify for a loan with them as her deposit was too small. On a small budget raising two kids, her husband working, there was not much left after rent and bills. She knew she could afford a mortgage, with rates so low, the mortgage would cost the same as rent!
Fed up she asked a friend for advice and they recommended the services of our brokerage. Jane got in touch with Matt in our office who quickly explained that Jane’s deposit was indeed, simply too small. To buy the land and build the house she wanted, she would need wait and save, OR find a guarantor.
This was the first time anybody had mentioned a second option to her, so she was keen to know more. “What exactly would they need to do?” she asked.
Matt being a guarantor specialist, explained that a guarantor offers up a limited amount of the equity in his or her own home or investment. With this, Jane and her husband, Don could cover a full twenty percent deposit and costs. Then the remainder of the mortgage would be financed without a guarantor. This is the banks way of structuring guarantor finance, as it lowers the exposure for the guarantors to just small part of the mortgage. Jane had already saved enough money to cover costs, so her guarantors just needed offer around sixty thousand dollars as a guaranteed mortgage. There was no cash required from the guarantors; they simply needed to be comfortable allowing a mortgage on their property for this amount.
Jane spoke to her parents that night. She knew they had always been interested in helping her step into the property market, and they said yes. They wanted more details so a call was a arranged with Matt as they were in another state. Matt called them and explained everything, including the banks requirements to consider seeking independent legal and financial advice. The parents were satisfied and wanted to proceed. They had one condition; that Jane and Don took out some income protection insurance and life insurance. We got George our Financial Planner to start work on that straight away. This was the insurance for our clients, as much as it was for the guarantors. It meant that should any illness or accidents occur that prevent them from making an income, everybody would be protected.
Jane was ecstatic, she now had pre-approval to purchase land, and build the home they had dreamed of living in. Don was happy too, and seemingly grateful that Jane, Matt and the in laws were handling all the paperwork!
A guarantor is not a complex arrangement, and many major banks and lenders will offer this service where the deposit is insufficient. You simply need to ask! In our experience, around one in five buyers have a parent who is willing to offer a guarantee. Having a guarantor also saves our clients lenders mortgage insurance premiums, and means we can negotiate a lower rate as the risk is much lower for the banks on these loans.
Parents – you’ve got to love them!