Guarantors for home loans or the bank of Mum and Dad

Navigating Home Loans in Challenging Times: We’re Here to Help!

With rising interest rates and the cost of living increasing, getting approved for a home loan is becoming more challenging.

Banks in New Zealand are tightening their eligibility requirements, making it harder for many to secure a loan for even a basic starter home.

But don’t worry, there are still ways to achieve your dream of homeownership with family help including guarantors for home loans, co-borrowing, or providing gifted or borrowed funds. We’re here to guide you through them.

Understanding Guarantors for home loans

One alternative to a standalone home loan is getting assistance from a guarantor. A guarantor is someone who takes on the risk and guarantees the repayment of your loan. This can be a great option, but we understand that the process can be confusing and uncertain for many.

Family Support Options

1. Using Home Equity: Parents or family members can help with a deposit even if they don’t have cash on hand by using their home equity. This can be a great way to secure the necessary funds without needing immediate cash.

2. Co-Borrowing: Co-borrowing, also known as joint borrowing, is becoming increasingly popular. This involves multiple loans, usually a larger one in your name secured by your home, and a smaller joint loan secured by both your home and your co-borrower’s home. This option doesn’t require upfront money from your family members, but they need to be able to afford the loan amount they’re committing to.

3. Cash Options:

Gifted Funds: This is when someone gives you money towards a deposit without expecting repayment. You’ll need evidence, like a gifting certificate, to show this money is a gift.
Borrowed Funds: This is when someone lends you money towards a deposit with an agreement that it will be repaid. This could be when the home is sold or when you’re in a position to repay the loan. It’s a good idea to document the repayment terms you agree to.

4. Guarantees: A guarantee involves using a home owned by someone else, such as your parents, as extra security for your loan. This means they will be responsible for some or all of your loan if you’re unable to make repayments. No upfront money is required from the guarantor, but they need to be able to afford the guaranteed part of the loan.