Getting guaranteed – Using a guarantor to buy your first home
Buying your first home is an exciting milestone, but it can sometimes be tricky to meet standard lending criteria. One way to bridge the gap? Bringing in a guarantor (often a supportive parent or close family member) to strengthen your application and access better loan terms.
What’s a guarantor?
A guarantor is someone who co-signs your mortgage using their own assets (like equity in their home) as security. If a borrower misses repayments, the lender can ask the guarantor to cover the debt. It’s a way of telling banks, “We’ve got this covered.”
Pros of having a guarantor
- Boosted approval chances: Guarantors typically bring extra security, increasing the likelihood your mortgage gets approved.
- Better borrowing terms: With stronger security, you might access lower interest rates, more favourable loan features, or more choice of lenders.
- Support without giving cash: Parents (or grandparents) can help you into a home sooner, without the need to gift money, just by helping out behind the scenes.
The risks involved
- Big liability: As a guarantor, you’re fully responsible if the borrower defaults. That means the guarantor’s own assets (like their house or investments) could be claimed.
- Credit score impact: Missed payments won’t just affect the borrower; they’ll hit the guarantor’s credit file too.
- Reduced borrowing power: Acting as a guarantor reduces your ability to borrow, since lenders view that commitment as a liability.
Before you say “yes”…
There are three key questions every guarantor (and borrower) should ask:
- Can you trust the borrower? Do they have a stable income and a realistic repayment plan?
- Can you afford it? Are you in a position to cover the loan if things go off track?
- How would it affect your relationship? Money can strain even the closest bonds, especially if repayments falter.
A guarantor can be a game‑changer, making it easier and quicker to buy a first home. But it’s not a decision to take lightly. Both parties should seek independent legal advice to fully understand obligations and outcomes.
Want to explore this option further? Our Queenstown mortgage advisers are here to guide both you and your guarantor, so everyone’s fully informed and confident. Reach out to us for a chat about how a guarantor could help make homeownership a reality.