Saving up for a home could be hefty. More often than not, most homebuyers apply for a home loan to finance their property purchase. Of course, a homebuyer must need to fulfill certain requirements before qualifying and getting their mortgage approved.
However, there are instances when traditional home loans do not apply to homebuyers. It could be because their credit score is too low or they have a shaky financial history. It doesn’t mean that they may not be able to get financing, though.
If you find yourself in a complicated financial situation but would still want to purchase a house, you may want to consider getting a guarantor loan. It is a type of loan requiring a guarantor to co-sign on the loan contract. The guarantor backs up the loan and promises to fulfill payments if you ever default.
Guarantor loan: explained
A guarantor loan is a type of loan that requires a guarantor to co-sign a loan contract. A guarantor is the person who agrees to make payments should the borrower default on the loan.
A guarantor is different from a co-borrower. A co-borrower is equally responsible for the home loan payment, while a guarantor simply guarantees that they will make the payments for the mortgage if the borrower defaults.
When finding a guarantor, you should choose someone you trust — and who trusts you in return. Many borrowers turn to friends, family members, or business partners as their guarantors. Keep in mind that your guarantor must be someone who is financially responsible and has a good credit score.
Who can be my guarantor?
Being a guarantor for someone else’s home loan can be tricky. Some lenders have strict requirements that you have to follow to a tee when applying for a guarantor loan.
Guarantors need to meet the following requirements:
- Must have a high credit score: A guarantor must typically have a 650 credit score or higher to qualify.
- Has a stable income: A guarantor should have a steady and decent stream of income or adequate savings to pay back the loan should the borrower default.
- Has a stable job: A guarantor must be able to show that they have a stable job by providing relevant documents mentioning how long they have had their jobs.
- Has a house: A guarantor must show that they are not a flight right and has a stable address in the country.
- A Canadian resident: Some lenders require a guarantor to have lived in Canada for a certain period to co-sign.
- Age of majority: A guarantor must be over 18 years old by showing a government-issued ID.
Why consider getting a guarantor loan
There are numerous reasons for you to consider getting a guarantor loan. Some of these are:
- Your credit score is not ideal
- You don’t want to pull a credit report
- You want a lower interest rate with the help of a guarantor
- Your conventional loan was not approved for the amount you want
However, you still have to think through if guarantor loans are for you, especially since you are involving someone else on the loan.
Not all lenders offer guarantor loans, so it’s better to find one that specializes in this type of loan. Do your research to find a lender who deals with subprime borrowers who need assistance getting a loan with a guarantor’s helping hand.
Fair warning, though: Be wary of lenders who promise to approve your guarantor loan without even looking at your documents. This may put you and your guarantor at risk. Avoid lenders who seem to promise the moon and stars to potential borrowers.