No deposit

By Nila Sweeney

Q. I am currently in the process of looking to buy a first home and need to buy it soon due to personal circumstances. I don’t have the minimum 5% deposit saved. My parents have offered to act as guarantors, using the equity in their current home. Can you tell me if lenders will allow me to borrow in this way? What are the potential problems involved? I am looking to borrow about $230,000.

A. You should have no trouble getting finance as long as you have an employment and a savings record which shows the lender that you can make the repayments. Together with the First Home Owner Grant to help you with your deposit, and the fact that your parents will act as guarantors, many lenders should be able to arrange a loan that suits your circumstances. However we do suggest you talk to a financial planner, accountant or solicitor to help you understand the guarantee process. As should your parents.A guarantee is a promise by your parents that the person or persons who are applying for credit (that’s you) under a credit contract will keep to all the terms and conditions the document contains. If you fail to make the repayments, you promise to pay the credit provider all the money owing on the contract. If you do not make the payments, not only would your parents be liable for the money owing, but they would also be liable to pay for any reasonable expenses incurred by the lender to collect the money owning, up to the limit, if any, stated in the guarantee. If they do not pay, then the lender can take legal action against them, which may result in the forced sale of any property owned by you, such as your own house. If the sale of your house was insufficient to repay the lender, your parents may be forced to sell some of their assets to cover the loan.Get some advice from a professional advisor or solicitor and then see a mortgage broker. The broker should be able to sort through hundreds of different loans and let you know which lenders should be able to help. Best of luck with the purchase of your new home!

Related: Home Loan Calculator