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When you’ve found a property you want to buy you will generally need at least a 10 per cent deposit upfront to put down on it – a big ask if you’re young, paying rent and only starting out in your career. The thought of having to save a huge chunk of cash before even taking on a mortgage is a daunting prospect for many.

If you don’t have enough for the full deposit but have the ability to make the mortgage loan repayments, having your parents or another immediate family member act as guarantors could help make your property purchase a reality. Many lenders allow a family member to help you buy a home by putting up additional security, which is usually the equity in your guarantor’s home. The lender will take out a mortgage on your guarantor’s property as well as yours, which is the primary security for the loan. Not anyone can be a guarantor though. Lenders usually require someone within the immediate family as the relationship is generally stronger than that with a non-relation.

Having a guarantor doesn’t mean they will be locked in for the life of your loan. Usually they can be released within two to five years once your property starts gaining equity. Another positive with having a guarantor is you’re saved from being slugged thousands in Loan Mortgage Insurance, or LMI. This is usually slapped onto a loan when you have less than 20 per cent deposit to put forward and the loan is greater than 80 per cent of the property value.

There are risks associated with becoming a guarantor, however. If you’re unable to make the mortgage repayments the lender can take legal action against you and the guarantor. The lender will take back the agreed amount from the guarantor if the loan is defaulted. It’s best to seek legal advice before agreeing to anything.

What happens at settlement?

Settlement is the final process in the exchange between buyer and seller before picking up the keys!

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