Firstly, what is a guarantor mortgage?
A guarantor loan is a guarantor agreement you would have with a close family member or close friend to get you a mortgage for a property if you are struggling to do so yourself.
You may be struggling to do so yourself due to being a student, a first-time buyer, having a poor credit history or having other financial problems.
A loan guarantor is becoming very popular with first-time buyers due to house deposits being so high.
Who can be a guarantor for a mortgage?
To begin with, you would have to pass the application process showing the typical requirements as you would the same way for your own loan. A savings account, proof of income and expenses, and pass the credit check with good credit history.
The mortgage broker would provide information on what is required to be entitled to guarantor mortgages & loans. Bad credit history would be a disadvantage for a loan guarantor.
Who can be a guarantor?
A mortgage guarantor must usually have a family connection.
The lender is responsible for ensuring that the person providing the guarantee is legitimate; it is important to allow relatives to act as guarantors to avoid fraud and other complications down the road.
Credit checks would be run to ensure you can cover the loan repayments and provide proof you can afford the loan, this may be In a savings account or show enough equity in the guarantor’s own home or property.
Different lenders would offer a different loan terms and require different needs to be accepted for the guarantor loan.
Even though the guarantor would not be on the mortgage, if the buyer misses a monthly payment, the guarantor would have to pay the loan repayment; this would be signed in the loan agreement and guarantee agreement.
Monthly repayment costs would differ for each property and the financial history of the guarantor.
Is it possible to be a guarantor for someone?
Guarantors loans can be anyone. Guarantor loans are usually a spouse or parent (as long you have separate bank accounts), but they can also be friends or relatives. You should not be a guarantor for someone you don’t trust or can pay the repayments.
You must be at least 21 years old with good credit history to become a guarantor. This will give you credibility and help to complete the application.
You need to be aware that financial risks are involved in asking for a guarantor loan. Legally responsible for the loan repayment if the borrower defaults on the payment are you as the guarantor.
These situations, such as monthly repayments missed and the financial burden, can often cause discord between friends and families.
Both the borrower as well as the guarantor need to consider whether they can maintain the payments seriously.
Read more: Types of guarantor mortgages
Need a guarantor member:
- Adoptive parents
- Family member
- close relative
- Brothers and sisters
- Aunts and uncles
- Any other relatives of close blood
This article about who can be a mortgage guarantor explains all about guarantors. You should remember that they don’t have to be blood relatives.
Sometimes, however, if there is a good reason, lenders might consider a nonblood relative as a potential guarantor (Step/foster parent, etc).
Close family members sometimes act as a guarantor, they would be made aware of the risks involved and that they would have to cover repayments if the borrower didn’t pay.
Is it necessary for me to act as a guarantor for someone else?
Most likely, it’s one of these reasons:
- They are borrowers with zero credit history (e.g. A young person or someone new to be a UK resident.
- They just started a new job.
- They earn a low salary.
- They have a bad credit record.
- They are a first-time buyer.
They may need a guarantor to secure a loan, mortgage, car finance or rental property. No matter the reason, it is important to get to know the person well enough to discuss their finances openly.
Before you agree to become a guarantor, ask yourself these questions:
- Is it because they have a bad credit score? Are they likely to be able to pay the monthly repayments?
- Are they responsible and financially stable?
- Are they really in need of a loan? Or could they save for a mortgage?
- Can you afford the monthly payments if they are unable or unwilling to repay the loan?
- Is it possible for your relationship to be affected if you have to pay their repayments?
- Do you need to have full responsibility for a borrower loan and have the extra financial stress?
Guarantor of rental property means you are vouching on behalf of the tenant and agreeing to the tenancy agreement.
You (the guarantor) will be legally liable to pay any rent overdue, rent payments or damages to the property if the tenant fails to fulfil their obligations under the tenancy contract.
Contact Loan Corp today if you have questions about applying for a guarantor loan or a mortgage without a guarantor.
Our mortgage brokers are regulated by the Financial Conduct Authority.
They will offer free mortgage advice for both you and the guarantor, as well as calculate your guarantor mortgage that you would be able to get.
We can do a free credit check without affecting your credit history and advise on the best mortgage for you.