Equity Guarantor or Limited Guarantee Home Loan
One way many people overcome not having a deposit available is to borrow 100 percent of the purchase price using security form another property to reduce the overall loan to value ratio. These types of loans are sometimes referred to a family equity or equity guarantee loans.
Table showing an example of using an equity guarantor to purchase a property with no deposit
|
No Deposit Equity Guarantee Home Loan Example |
|
| New property purchase price |
= $300,000 |
| Costs for this purchase (First Home Owners in NSW) | = $2000 |
| Loan Required | = $302,000 |
| Loan to Value Ratio | =100.66 percent |
| Parents or friends property | =$350,000 value |
| Parents or friends Loan | =$50,000 |
| Parents or friends Loan to Value Ratio | =14.28 percent |
| Parents or friend puts up security from their property | =$58,400 required |
| New property Loan to Value Ratio is now | =80 percent, no mortgage insurance required |
| Parents or friends Loan to Value Ratio becomes | =30.97 percent |
| Parents or friend still have almost 50 percent equity that could be accessed before mortgage insurance would become a requirement. Loan applicants have borrowed 100 percent of the purchase price and all costs without having to pay lenders mortgage insurance. | |
Over time the debt for the equity guaranteed property should reduce through regular loan repayments.
If property values increase over time an equity increase in the newly acquired property could grow to a point where the security guarantee from the parents or friends property is no longer required.
At this time a request could be lodged with the lender to release the security guarantee property as a security for the loan. This would leave the more recently acquired property securing the remaining loan itself.