Family Guarantee How it can help you
A Family Guarantee helps homebuyers enter the property market now.
The Family Guarantee is a flexible home loan solution which enables first home buyers and first-time property investors with limited savings to enter the property market sooner.
This is achieved by leveraging equity in a family member’s property (e.g. parents) or securing a portion of the debt by a term investment fund held with Credit Union SA.
Key benefits for first-time borrowers
The Family Guarantee allows borrowers:
- to qualify for a loan to get into the property market sooner;
- to avoid paying Lenders’ Mortgage Insurance (LMI), which is typically required where the value of the loan exceeds 80% of the value of the property to be purchased; and/or
- to increase the amount that can be borrowed – up to 100% of the value of the property. However, borrowers must provide at least 5% of the purchase price from genuine savings, which has been saved regularly over at least 3 months.
Key features for guarantors
- Limited guarantee – the amount of the guarantee is limited to the amount required to achieve a Loan to Value Ratio (LVR) of 80%. The LVR is calculated by dividing the total loan amount by the total security amount (the value of the property to be purchased) to be provided expressed as a percentage.
- Releasing the guarantee – the guarantee can be released as soon as the LVR calculated against the value of the property to be purchased is 80% or less. Alternatively, the guarantee can be released earlier if LMI is arranged as a substitute for the security provided by the guarantee.
- Loan repayments – borrowers are responsible for repaying the full amount of the loan. Guarantors are only responsible for their part of the loan if the borrowers default.
Here is how it works
Mia and Dan are First Home Buyers saving towards the goal of purchasing a property in Edwardstown for $400,000.
They are able to meet the repayments on a $400,000 home loan. They have savings of $22,000 as a deposit. This deposit will be used entirely to cover acquisition costs such as Government charges, conveyancer fees, valuer fees, conversion rates, taxes and other fees. Thus, a loan exactly equal to $400,000 is required to fund the purchase of the property.
LMI is typically required where the value of the loan exceeds 80% of the value of the property to be purchased. Mia and Dan want to avoid this. So in order to achieve a LVR of 80%, Dan’s parents offer their home as security to cover the difference and guarantee Mia and Dan’s loan for $80,000. Mia and Dan can then purchase the property and avoid LMI.
Where a borrower is entitled to a government grant, the entitlement will not be affected by the provision of a Family Guarantee. Family Guarantees will not usually be accepted by the Credit Union where offered to support borrowings for a second/subsequent property or for any other purpose.
To ensure everyone understands all the ins and outs, we will ask all borrowers and guarantors to be interviewed, either face-to-face or over the phone. Guarantors must also be interviewed face-to-face, separately from the borrowers, either by an accredited staff member or by a solicitor at loan contract signing.
Credit Union SA will give all guarantors prominent notice that:
- you can refuse to enter into the guarantee
- you have the right to limit your liability
- there are financial risks involved
- you should consider the information and documents we provide to you, and seek further information or clarification if required
- you should seek independent legal and financial advice before entering into the guarantee (in some circumstances, we may require that you obtain such advice as a condition of accepting your guarantee).
Applicable loan products
- Discounted Variable Rate Home Loan
- Standard Variable Rate Home Loan
- Fixed Rate Home Loan
- Variable Home Loan Package
- Fixed Home Loan Package
Not applicable for Interest-only loans.
Which family members can provide a Family Guarantee?
Credit Union SA will consider provision of guarantees by other immediate family members where a guarantee from the above-mentioned family members would not be appropriate.
When can a Family Guarantee be used?
Guarantees from family members can only be provided to assist first home buyers/investors to:
- purchase a new property;
- purchase an established property;
- build a new home.