Who can be a guarantor for a home loan?

Saving money to buy your dream house, or even a decent home, can be challenging, especially if you’re already renting. However, there is a solution that may help you get a home loan more easily: getting a guarantor on board. 

What is a guarantor home loan, and how does it work?

A guarantor home loan is when someone else uses the equity or security in their own home to "guarantee" your mortgage. A guarantor must hold adequate equity in the property that is being used as collateral. This equity is used in place of some or all of the deposit your loan would normally require. This arrangement may allow a first home buyer to purchase their property sooner, without having to save up as much money as a deposit. 

A guarantor is a person or group of people who agree to repay the loan if you cannot meet your financial obligations. In essence, the guarantor takes financial responsibility for the mortgage if you default on your payments, though they have no ownership rights over the property. 

A guarantor may not be required for the loan's full term. Once the borrower has built up enough equity in their own proeprty, whether by making extra repayments, revovating the structure, or waiting for capital growth, they may be able to refinance their mortgage and release the guarantor from their obligations. 

Who can be a guarantor for a home loan? 

Different lenders have different guarantor requirements, though many lenders will only accept guarantors who are the borrower's immediate relatives, such as:

• Parents
• Adult Children
• Spouse
• De facto partners

The following direct family members may also be acceptable in some cases:

• Siblings
• Grandparents
• Legal guardians and step-parents
• Stepchildren 
• Step-siblings

Aunts, uncles, cousins and other relatives aren't usually accepted as guarantors, though exceptions can sometimes be made based upon their relationship with the borrower. 

Who is not acceptable as a guarantor for your home loan?

The guarantor must have a strong relationship with you, so the following people are usually not acceptable:

• Friends
• Associates and coworkers
• Former spouses or de facto partners
• Anyone else with whom you don't have a direct relationship
• Anyone with a poor credit rating

Can I be a guarantor on a mortgage?

Since guaranteeing someone's loan is a significant commitment, you may want to consider the following before making your decision:

• Examine whether you can afford to be a guarantor and if the borrower can afford the loan.
• Consider how becoming a guarantor could affect your relationship with the borrower.
• Seek independent legal and financial guidance to ensure that you fully comprehend the loan process and its implications for your finances.
• Estimate the extent of your liabilities and obligations of the borrower was to default.
• Calculate if you can afford the loan's monthly payments, if necessary, without relying on outside assistance.

If you decide not to be a guarantor, make sure you do so before the borrower receives loan approval and signs the contract to prevent a contractual default and possible legal action against the borrower.

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