Securing a Family Guarantee Loan for a First Home Purchase

Emily, a 28-year-old marketing professional, sought assistance from Zenith to purchase her first home, a $1,200,000 property. With only a 5% deposit saved, Emily’s parents agreed to act as guarantors using the equity in their own home. However, they were hesitant about having their serviceability assessed.

Challenges

• Limited Deposit: Emily had only a 5% deposit, which is typically insufficient for most lenders.
• Avoiding LMI: She wanted to avoid paying Lenders Mortgage Insurance (LMI), which can be costly, but she did not qualify for government schemes at this price point.
• Guarantor Serviceability: Her parents were willing to be guarantors but didn’t want their income assessed as they were no longer working.
• Lender Requirements: Finding a lender that would accept a limited guarantee without assessing the guarantors’ serviceability was crucial.

Solution

To address these challenges, we employed the following strategies:

1. Assessing Emily’s Financial Situation: We reviewed Emily’s income, expenses, and credit history to ensure she could service the loan repayments on her own.
2. Evaluating the Parents’ Property: We assessed the equity available in Emily’s parents’ home to determine the guarantee amount.
3. Lender Selection: We identified lenders offering family guarantee loans that don’t require serviceability assessment for guarantors.
4. Loan Structure: We structured the loan as follows:
   • 80% Loan: $960,000 secured against the purchased property.
   • 15% Guarantee: $180,000 secured by the parents’ limited guarantee.
   • 5% Deposit: $60,000 from Emily.

Process

Our process involved several key steps:

• Client Education: We explained the limited security guarantee to Emily and her parents, emphasising the parents’ liability and the importance of Emily making all repayments.
• Loan Application: We prepared a comprehensive application highlighting Emily’s financial stability and the parents’ equity position.
• Guarantee Structure: We worked with the lender to ensure the guarantee was limited and did not require serviceability assessment for the guarantors.

Outcome

We successfully secured a $1,140,000 family guarantee loan for Emily. The loan was structured with only a 5% deposit from Emily, avoiding LMI and ensuring her parents’ liability was limited to 15% of the loan amount. A plan was implemented to release the guarantee once Emily builds 20% equity in the property.

Conclusion

This case study demonstrates how family guarantee loans can be tailored to meet specific needs, such as avoiding guarantor serviceability assessments. At Zenith, we specialise in navigating these complex scenarios to secure favourable outcomes for our clients.