It must seem impossible for our first home buyer’s to get on the property ladder these days. The strength of the Brisbane property market certainly bodes well for a seller but less so for a buyer and the changes to government incentives now mean a buyer requires even more of a deposit than they did 12 months ago.
If you are a buyer with a low deposit, a Guarantor may be the answer!
Here's a recent success story:
Katie*, at 31 years of age was looking to buy her first home. She’d gone along to a few open homes to test the market and was feeling deflated that the homes she wanted were out of her price range. She only had $60 000 saved which seemed well short of what she would need for a deposit on a property. Based on a suggestion from a friend she rang us to talk through her options.
Here's what we learnt:
1. Katie was a registered nurse and earned a good consistent income. 2. Her repayment capacity was enough to support the required lending and more. 3. Katie’s parents owned a home with a mortgage and were willing to help however they could.
What we proposed...
Katie’s parents would provide a Security Guarantee to supplement the deposit she had. Under a family guarantee, the parents utilise the equity in their home to use as security to a buyer's loan. The person providing the security is known as a Guarantor. In this scenario, they don’t need to give Katie or the lender any money, they accept the obligations associated with entering into a guarantee. In this case, it means, the parents/guarantor supply the guarantee and Katie repays the mortgage.
How did it work out?
If a buyer needs to borrow more than 80% of the property value, Lenders Mortgage Insurance (LMI) is Required. LMI protects the lender if the buyer was unable to continue their lending obligations. If LMI is required, the applicant pays the premium, it’s important to note that LMI doesn’t provide the applicant with protection – it’s there for the lender's protection.
When a Security Guarantor is available, the buyer can borrow the remaining 20% plus costs against the guarantor's property such as Katie’s parent's property. In this case, Katie wanted to keep the loan as low as possible, so she contributed her savings, and her parents were able to 'go guarantor' on the remaining deposit. Generally speaking, once equity has been built sufficiently in the property to reach 20%, the buyer and their guarantor can apply to the lender to release the guarantor from their obligations and remove the guarantee. Because of strong property growth over the last 12 months, Katie’s parents had accumulated a large amount of equity in their home. Katie’s parents’ home had an existing mortgage but there was still enough equity to provide the required guarantor support.
Katie was delighted with this news. Before long she found a great little property which she was proud to call her own and we were pleased to have been able to help her along the way.
If you are a potential buyer or know one who might benefit from a discussion with a mortgage broker regarding a Security Guarantee, please give the Astute East Brisbane team a call and we'll do the rest. Reach out anytime and we'll be happy to help.
*Names have been changed to protect client privacy.
Astute Financial Management Pty Ltd | ACN 093 587 010 | Australian Credit Licence 364253 | Davgan Insurance & Wealth Pty. Ltd. T/As Astute East Brisbane Corporate Authorised Representative (425641) of Alliance Wealth Pty Ltd | ABN 93 161 647 007 | AFSL 449221. www.centrepointalliance.com.au/aw | General Insurance provided by Astute Insurance Pty Ltd | ABN 59 622 582 236 | Authorised Representative of Ausure Pty Ltd ABN 94 096 971 854 AFSL 238433. Health Insurance products are underwritten by St Luke’s Medical and Hospital Benefits Association ACN 009 479 618 (St.LukesHealth), a registered private health insurer, [trading as Astute Simplicity Health] and members are introduced by Astute Financial Management Pty Ltd or related entities (collectively known as Astute) for which Astute receives a commission.
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