Lets face it, the amount of money a first home buyer needs to save to get a foot in the door of the property market can look to be a mountain to high to climb for many first home buyers.
This has seen the emergence of Family Guarantee Loans over the last decade or so.
But what is a Family Guarantee Loan?
In basic terms it is a loan whereby a family member provides a limited guarantee over their own home to assist with covering the borrowers equity portion and / or fees. Normally the borrowers loan is structured so that the loan to valuation ratio against the house being purchased is limited to 80%, to avoid Lenders Mortgage Insurance and potentially save the borrowers thousands of dollars.
The most common form of Family Guarantee is when parents provide guarantee support for their children to gain a home loan, but many lenders will consider a guarantee from other immediate family members.
The important point here is that borrowers need to demonstrate that they can service the full loan amount of the debt without any reliance on the guarantors to meet loan repayments.
This type of loan has many benefits and certainly can assist first home buyers to enter the property market, but it is not a decision that should be taken lightly.
By providing a guarantee the family member could be called upon to rectify any loan arrears and ultimately the lender holds their property as security for a portion of the loan.