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For many young people in Perth, the biggest barrier to entering the property market is saving the substantial cash deposit required by most lenders. Watching property prices rise while you are trying to save can be incredibly discouraging. It can feel like the dream of homeownership is getting further away. However, there is a powerful financial strategy that allows family members to help their children get into a home sooner. This solution is a guarantor home loan. Understanding how these specialised Home Loan borrowing services Perth work is the first step. This guide, brought to you by the team at Strawberry Finance, will explain the process, benefits, and critical responsibilities of a guarantor loan.

What is a Guarantor Home Loan?

A guarantor home loan is a specific type of mortgage product. It allows a close family member, almost always a parent, to use the equity in their own property as additional security for your loan. It is important to understand that the guarantor is not giving you cash for a deposit. Instead, they are providing a "security guarantee" to the lender. This guarantee significantly reduces the lender's risk.

The primary purpose of this structure is to help the borrower avoid the cost of Lenders Mortgage Insurance (LMI). LMI is typically required when you borrow more than 80% of a property's value. By using the guarantor's property as security, the loan-to-value ratio (LVR) is effectively lowered. This allows the new buyer to borrow up to 100% of the purchase price without needing to pay thousands of dollars in LMI premiums.

The Benefits for the First Home Buyer

For a first-home buyer in Perth, a guarantor loan offers several life-changing benefits. It can dramatically accelerate their journey to homeownership.

The most significant benefit is the ability to get into the market much sooner. Saving a 20% deposit in a competitive market can take many years. A guarantor loan allows you to buy a home with a very small cash deposit, or in some cases, with no cash deposit at all if the guarantor's security is sufficient to cover all costs.

Another major benefit is avoiding the cost of LMI. Lenders Mortgage Insurance can cost anywhere from a few thousand to over ten thousand dollars, depending on the loan amount and deposit size. By avoiding this cost completely, you reduce the total amount you need to borrow. This means your ongoing mortgage repayments will be lower. This is a key financial advantage provided by these Perth home loan borrowing services.

The Responsibilities and Risks for the Guarantor

While a guarantor loan is a wonderful act of generosity, it is a serious legal commitment for the guarantor. It is crucial that anyone considering acting as a guarantor understands their responsibilities and risks completely.

A common misconception is that the guarantor is responsible for the entire loan amount. This is incorrect. In a modern guarantor loan, the guarantee is "limited." This means the guarantor is only liable for a specific portion of the loan, typically the 20% required to bring the borrower's LVR down to 80%. This limits their total potential exposure.

However, the risk is still very real. If the borrower is unable to make their repayments and the property has to be sold at a loss, the guarantor is legally obligated to pay the lender for any shortfall, up to the amount of their guarantee. For this reason, it is an absolute requirement that any potential guarantor seeks independent legal and financial advice before they sign any documents.

How to Release the Guarantor from the Loan

The guarantee is not intended to last for the entire 30-year loan term. It is a temporary measure to help the borrower get started. The goal is always to release the guarantor from the loan as quickly as possible.

This can be done once the borrower has built up enough equity in their own property to have an 80% LVR without the need for the guarantee. This equity can be built through a combination of making principal repayments and the property's value increasing over time. Once this point is reached, a mortgage broker can help the borrower apply to the lender to have the guarantee formally removed. This releases the guarantor and their property from any further obligation.

The Role of a Specialist Broker

Due to the complexity and the significant responsibilities involved, it is essential to use a specialist mortgage broker to arrange a guarantor loan. Not all lenders offer these products, and the ones that do have very strict and complex policies. A specialist broker knows which lenders to approach. They can clearly explain the process and legal obligations to both the borrower and the guarantor. Most importantly, they will manage the entire application process to ensure it is structured correctly and smoothly.

This guide to family pledges was contributed by Strawberry Finance. They specialize in helping families work together to achieve property goals. For expert advice on Home Loan borrowing services in Perth, including guarantor loans, their team can guide you.