After deciding it’s time to buy an apartment , the next step is figuring out how to finance it. This includes applying for a loan, which often requires a mortgage guarantee , thus ensuring a guarantor. At Edifica, we want to be with you from the start, so we’ll explain what a mortgage loan entails.
Mortgage guarantee
A guarantor mortgage is a type of mortgage loan in which a parent or close relative assumes part of the mortgage risk by acting as guarantor.
Typically, united kingdom phone number library this involves them offering their home or savings as collateral against the loan and agreeing to cover the mortgage payments if the homeowner defaults.
Some guarantor mortgages even allow you to borrow 100% of the property’s value using a person’s collateral instead of a deposit.
On the positive side, guarantor offers can help you get a mortgage or allow you to borrow more. The main disadvantage is that the guarantor could be responsible for any shortfall if your property has to be repossessed and sold.
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Tips to know if you need a mortgage guarantor
This type of home loan may be suitable if you are looking to purchase a property with:
- Low income: Lenders will decide how much to lend you based on your income, so having a guarantor may allow you to get a larger loan.
- A small deposit/no deposit: You could potentially borrow up to 100% of a property’s value with a guarantor mortgage.
- A bad credit score: Having a guarantor can make a lender more inclined to offer you a loan.
- Little or no credit history: for example, if you’ve never had a credit card.
Who can be a mortgage guarantor?
Many lenders will require that your mortgage guarantor be a close relative, how to start a paid traffic strategy? usually a parent. Therefore, the guarantor must have:
- Savings or property: Lenders will hold some of your guarantor’s savings in an escrow account or legally take over a portion of their property to secure the mortgage.
- A good credit history: so lenders can trust you are financially reliable.
- Legal advice received: A requirement of some lenders to confirm that guarantors are aware of the risks.
Types of guarantor mortgages
There are many advantages to taking out a mortgage . In that sense, all home purchase loans have slightly different eligibility criteria, but guarantor mortgages generally fall into one of these categories:
1. Savings as security
Some lenders offer mortgages where a family member deposits cash (usually between 5% and 20% of the property price) into a special savings account.
That amount is held as collateral for your mortgage for a set number of years, or until the amount owed falls below a certain percentage (for example, 80%) of the property’s value.
Your family member can typically earn interest on the money tied to their mortgage, usa b2b list although the rate may be lower than what they would get with other savings accounts.
If you default on your mortgage payments , the lender could hold your family member’s savings for a longer period. If the lender had to repossess and sell your property and received less than what you still owe on your mortgage, they could recover the difference from your family member’s savings.
2. Property as collateral
These agreements involve placing a lien against the mortgage guarantor ‘s property . This means that, to be eligible, they must directly own a significant portion of your property.
In the worst-case scenario, if the lender were to repossess and sell your property for less than the remaining mortgage amount, your family member could lose their home.
3. Joint mortgages
Joint mortgages allow a parent and child to purchase a property together, meaning both names are on the mortgage and the property deeds.
This means your parents can use their income and savings to leverage your mortgage changes. However, there are two major dangers. First, the parent will be jointly responsible for the mortgage, and second, if they already own their own home, they will have to pay the second property tax surcharge.
4. Sole Proprietor and Joint Borrower
This type of agreement also allows parents and children to join forces to obtain a mortgage. The big difference is that, while both the parent and child are named on the mortgage, only the child’s name will appear on the property deeds, meaning the parent can avoid any problems if a payment is missed.
Older parents may have difficulty getting accepted, and lenders may prefer applications where the child can demonstrate that their income will increase significantly in the future.
Now, unlike some products that use the guarantor’s savings or property as collateral, joint mortgages will still require the buyer to put down a deposit, which varies from agreement to agreement.
Which of these types of guarantor mortgages best suits you? Consider your current situation and possibilities and, based on that, make the best choice. After that, comes the most fun part: searching for the best apartment.
For that stage, trust Edifica Real Estate, which has 15 years of experience developing projects in the most established districts of Lima and other cities.
You’ll find the best apartments under construction or ready to move in. If you’d like more information about our real estate projects , please contact us and we’ll get back to you shortly.