How to Help Your Kids Get Into Their Own Home

Helping your children achieve independence is a major milestone. A parental loan guarantee, also known as a family guarantee, is one option available to assist immediate family members in securing a home loan.

In this arrangement, the parent acts as the guarantor. Understanding how a parental loan guarantee works can help families decide if it is the right path towards home ownership.

How the Parent Guarantee Home Loan Works

As the guarantor, a parent links equity from their own property to the child’s loan as additional security. This makes the parent's property secondary security for the home loan.

Additionally, a family guarantee can help buyers avoid paying Lenders Mortgage Insurance (LMI).

Are You Qualified to Be a Guarantor?

Generally, immediate family members such as parents, grandparents and siblings are eligible to become guarantors. Some lenders may allow extended family members or even family friends to act as guarantors, depending on their policy.

Benefits of a Parent Guarantee Loan

A family guarantee can help buyers secure a home loan if they lack a sufficient deposit. However, the borrower must still demonstrate the financial ability to service the loan. Approval requires meeting the lender's repayment assessment criteria.

This type of loan can assist buyers in entering the property market sooner by increasing borrowing power and avoiding LMI. Guarantee terms vary by lender policy; the guarantee may cover either a portion of the loan or the entire amount.

Are There Repercussions?

If the borrower fails to make loan repayments, the guarantor becomes legally liable to repay the guaranteed amount. However, a guarantor can be released from liability before the loan is fully repaid, provided the situation meets the lender's policy criteria.

Helping your children buy a home can be a practical step if they are ready for the financial responsibility of home ownership.