You can use a willing parent, family member or friend as a guarantor for your mortgage – this can also be used in conjunction with KiwiSaver withdrawals, gifts and savings.
This is a complex area and every bank is different on how they view it, some can be quite complex with their family springboard schemes so it will pay to contact us to discuss further.
Typically what happens is the bank or lender will take a mortgage over your parent’s/guarantors’ property as well as the property you are purchasing. The guarantee is usually limited to 20% (plus interest and charges in the event of default).
You would want the arrangement to be short term, e.g. 2 to 5 years, so the loan can be refinanced and the guarantee released as soon as possible.
Usually the purchaser(s) need to prove they can service the entire debt, some of it (usually 20% of the loan) may be set up on a shorter term. Some banks require the guarantor to prove they could service some of the loan (20%) and/or be a co-borrower for some of the debt.
The guarantor needs to provide some basic financial information such as a statement of position showing assets and liabilities, and a credit check. They also need to confirm income. Some banks require a full application from the guarantor. Banks will look at the suitability of a guarantor to make sure (for example) a little old lady with only pension income and a freehold house is not being put in a compromising position!
A family member’s term deposit may also be able to be used as security for the home loan.
Every bank is different on how they work these guarantees so it pays to talk to us. Normally the guarantors will need to seek legal advice.
For more information or to discuss your options please contact us.