With two reliable incomes, good credit history and a spotless rental record, Andrew and Shelley were great candidates for a loan – but they just didn’t have the savings at hand to get started.

Undeterred by their lack of a deposit, they had decided it was time to escape the rental market and find a home, so they could start a family.

One of the most effective ways for young couples like Andrew and Shelley to get into their first home quickly is to ask their parents for help, as guarantors.

In their feedback after we arranged their home purchase Shelley said,

“We hadn’t even considered asking our parents for help. We wanted to do this by ourselves, to be independent. But when Patrick explained the benefits, we decided it was worth a try. We have a great relationship with our parents, so we thought with Patrick’s help, it might just work.”

The Four Reasons a Guarantor could make your dream of home ownership real.

While some young couples might feel uncomfortable about asking their parents for help with their home loan, arranging for parents to go as guarantor is a great solution – and here’s why.

1. Most parents are very happy to help out – they have spent many years paying off their own mortgage and have an understanding of the financial burden.
2. Parents of young people like Andrew and Shelley have generally reached a life stage where they are in a comfortable financial situation.
3. Using a guarantor means you can borrow up to 100% of the loan amount, so you can own your new home much sooner.
4. When you take advantage of a First Homeowner’s Grant, you’ll be on your way to repaying the loan right away.

Having a mortgage broker guide you is a great advantage

The process of arranging a guarantor involves the development of a strong and trusted relationship between parents, young people and the mortgage broker. It’s vital that parents understand the responsibility they are taking on and that everyone knows the pros and cons of the arrangement.

Pros:

• You can borrow all the cost of buying the home and the stamp duty by using your new home purchase and your parent’s home as security.
• The amount you can borrow will be assessed using your income – not your parents, so it does not matter if your parents have a low income.

Cons:

• Not all banks will provide this option, so you will need to find the right one. Custom Financial can help!
• There is often additional paperwork and legal documentation to obtain a clear acknowledgement that your parents understand their commitment. Your parents will be required to get legal advice – and they should, even if there is no requirement by the bank. They will need a different lawyer to the lawyer you use and there will be legal fees to pay.
• There are risks and responsibilities your parents need to know about. If you can’t keep up with your loan repayments, the bank would sell your home first – only if there was a shortfall would they look to your parents’ home.

Meeting the Parents

When Andrew and Shelley were completely comfortable with the plan, we set up a meeting with Shelley’s parents. I worked with Shelley’s parents to build a strong relationship, giving examples of how the guarantor loan set up works and how they could use this opportunity to make a strong investment in their daughter’s future.

As a close family, Shelley’s parents were keen to help but of course they had their concerns and really needed someone to explain what they were getting into. They appreciated the effort I made to put them at ease and were delighted to know that I had Shelley’s best interests at heart. Acting as guarantor meant there was no need for the couple to spend up to two years saving a deposit for a loan.

Thanks to the support of their parents, Andrew and Shelley secured their guarantor loan, found a new home for $450,000 and qualified for the First Homeowner’s Grant, all within a few short months. Even better, they are now happily settled in their new home with a baby on the way.

The guarantor loan was a great solution for Andrew and Shelley but of course everyone’s situation is different.  The qualifications and approvals for guarantors vary markedly between lending institutions. Having a mortgage broker to guide the process makes a big difference.

Considering your first home loan, but no savings to hand?

Perhaps start by giving this blog to your parents.  I’d be happy to set up a time to meet and explain how it all works to your parents.  If you’re not close to us then I suggest you choose a broker who has a calm, consultative and even-handed manner, with both you and your parents’ best interests at heart.

With the help of mum and dad (just one more time), you could be in your own home sooner than you think.