A Family Guarantee can help homebuyers enter the property market sooner.
The Family Guarantee is a flexible home loan solution which allows first home buyers and first-time property investors with limited savings to enter the property market sooner.
This is achieved by leveraging equity in a family member’s property (e.g. parents) or securing a portion of the debt by a Term Deposit fund.
Key benefits for first-time borrowers
A Family Guarantee allows borrowers:
- to qualify for a loan to get into the property market sooner;
- to avoid paying Lenders’ Mortgage Insurance (LMI), which is typically required where the value of the loan exceeds 80% of the value of the property to be purchased; and/or
- to increase the amount that can be borrowed – up to 100% of the value of the property. However, borrowers must provide at least 5% of the purchase price from genuine savings, which has been saved regularly over at least 3 months.
Key features for guarantors
The amount of the guarantee is limited to the amount required to achieve a Loan to Value Ratio (LVR) of 80%. The LVR is calculated by dividing the total loan amount by the total security amount (the value of the property to be purchased) to be provided expressed as a percentage.
Releasing the guarantee
The guarantee can be released as soon as the LVR calculated against the value of the property to be purchased is 80% or less. Alternatively, the guarantee can be released earlier if LMI is arranged as a substitute for the security provided by the guarantee.
Borrowers are responsible for repaying the full amount of the loan. Guarantors are only responsible for their part of the loan if the borrowers default.
Here is how it works
Mia and Dan are First Home Buyers saving towards the goal of purchasing a property in Edwardstown for $400,000.
1. Mia and Dan have $22,000 in savings which will be enough to cover Government charges and other fees
|2. Mia and Dan want to purchase a property valued at $400,000 and can borrow up to 80% of the value. In order to avoid paying LMI they can only borrow $320,000 against that property. They still need another $80,000 to support borrowings of $400,000.
3. Dan’s parents agree to guarantee $80,000 of the loan being the remainder required to purchase the property. Dan’s parents must have at least $100,000 of equity in their home to support the guaranteed amount ($80,000 divided by 80%).
4. Mia and Dan avoid paying LMI, saving them $11,000 – that’s a significant saving.
5. Credit Union SA can now fund a loan of $400,000 without LMI payable. 80% of the loan is supported by Mia and Dan’s property, 20% is supported by Dan’s parents’ guarantee.
6. Mia and Dan later have $475,000 property value. This scenario is based on the theory that the value of Mia and Dan’s property may increase over time.
In time, Mia and Dan want to relieve the exposure on Dan’s parents, by removing them as guarantors on the loan.
7. Dan’s parents guarantee is released so Dan’s parents’ property is no longer being used as security for the loan.
8. The loan now amounts to $380,000 and is completely Mia and Dan’s responsibility. The loan remaining must be no more than 80% of the value of the property.
They are able to meet the repayments on a $400,000 home loan. They have savings of $22,000 as a deposit. This deposit will be used entirely to cover acquisition costs such as Government charges, conveyancer fees, valuer fees, conversion rates, taxes and other fees. Thus, a loan exactly equal to $400,000 is required to fund the purchase of the property.
LMI is typically required where the value of the loan exceeds 80% of the value of the property to be purchased. Mia and Dan want to avoid this. So in order to achieve a LVR of 80%, Dan’s parents offer their home as security to cover the difference and guarantee Mia and Dan’s loan for $80,000. Mia and Dan can then purchase the property and avoid LMI.
Where a borrower is entitled to a government grant, the entitlement will not be affected by the provision of a Family Guarantee. Family Guarantees will not usually be accepted by lenders where offered to support borrowings for a second/subsequent property or for any other purpose.
Understanding the risks
To ensure everyone understands all the ins and outs, most lenders will ask all borrowers and guarantors to be interviewed, either face-to-face or over the phone. Guarantors will usually be interviewed face-to-face, separately from the borrowers, either by an accredited staff member or by a solicitor at loan contract signing.
We give all guarantors prominent notice that:
- you can refuse to enter into the guarantee
- you have the right to limit your liability
- there are financial risks involved
- you should consider the information and documents we provide to you, and seek further information or clarification if required
- you should seek independent legal and financial advice before entering into the guarantee (in some circumstances, we may require that you obtain such advice as a condition of accepting your guarantee).
Available home loans
Here's a list of our homes loans available to family guarantee applications:
- Discounted Variable Rate Home Loan
- Standard Variable Rate Home Loan
- Fixed Rate Home Loan
- Variable Home Loan Package
- Fixed Home Loan Package.
Talk to us about a home loan today – we’re here to help.
The target market for this product can be found within the product’s Target Market Determination (TMD), available at creditunionsa.com.au/tmd
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Struggling to save up enough of a deposit to buy your first home or first investment property? Then our Family Guarantee could be just the thing to get you into a place you can call your own. Our Family Guarantee enables first home buyers with limited savings to enter the property market sooner*.
Here's how it works – If your parents or other family members have equity in their home, investment property or have a Term Deposit with Credit Union SA, you can use that equity or investment to guarantee a portion of your loan.
Which family members can provide a Family Guarantee?
Credit Union SA will consider the provision of guarantees by other immediate family members where a guarantee from the above-mentioned family members would not be appropriate.
When can a Family Guarantee be used?
Guarantees from family members can only be provided to assist first home buyers/investors to:
- purchase a new property;
- purchase an established property;
- build a new home.
Where a borrower is entitled to a government grant, the entitlement will not be affected by the provision of a Family Guarantee. Family Guarantees will not usually be accepted by the Credit Union where offered to support borrowings for a second/subsequent property or for any other purpose.Download our Family Guarantee Guide
*Subject to responsible lending criteria.