Know The Truth About Being A Home Loan Guarantor

When individuals set out to purchase their dream home with the help of financial products such as home loans, they have to fulfil certain eligibility parameters pre-determined by lenders. Here, applicants with a low CIBIL Score may struggle to get the home loan approval.

In such cases, lenders often guide borrowers to include a home loan guarantor who can help to improve the loan applicant’s creditworthiness. Individuals asked to be a home loan guarantor must know the associated risks, liabilities, and rewards to ensure a hassle-free future loan approval.

Home loan guarantor- An overview

A home loan guarantor is a person who accepts to take the responsibility of the primary applicant throughout the home loan tenor. If an applicant/primary borrower fails to repay the home loan amount, the guarantor steps in and continue repayment until the end of tenor.

Lenders usually ask for a guarantor in the following circumstances:

• If the primary borrower is a self-employed individual without any professional qualification or does not have a steady income or has a transferable job, or lenders are sceptical about the borrower’s repayment capacity.

To become a home loan guarantor, individuals must have financial stability. They must be ready to take immediate repayment responsibility, i.e. home loan EMI payments, if a primary borrower defaults. When individuals fulfil these requirements, they can become home loan guarantors.

Benefits of including a housing loan guarantor

Following is a list of benefits of including a housing loan guarantor,

• First-time borrowers struggling to get the required loan amount can benefit massively by adding a home loan guarantor. It will help them avail the loan faster.
• Having a guarantor allows primary borrowers to avoid paying home loan insurance as the primary borrower along with that guarantor will be able to borrow full purchase price.

Note:  If individuals opt for home loan insurance, they can gain home loan tax benefits for the premium paid. However, you can hire Xero Specialist to get professional help regarding personal tax return.

Risk of being a housing loan guarantor

Being a home loan guarantor helps to quicken the loan approval process. However, it also brings certain risks to the concerned person. These are discussed below,

• If the primary borrower fails to repay the loan amount, it will negatively affect the guarantor’s credit score. When primary applies for housing finance, the details of guarantor also get registered with the credit bureaus. In such cases, both primary borrowers and guarantors will receive same treatment in case of loan default.
• When a primary borrower fails to make repayments, a guarantor has to pay the loan amount as well as interest amount and fees. If guarantors cannot pay back the loan, lenders have the authority to claim the property.
• Sometimes, guarantors may assume that financial institutions will come after housing loan guarantors only after they have utilised all options available with the primary borrower. Contrarily, lenders can proceed against guarantors even before approaching the borrower.
• Being a guarantor affects the concerned person’s housing loan eligibility. This is because guaranteeing someone else’s loan impacts loan eligibility for future loan requirements. Here, the only difference between a primary borrower and a guarantor lies in liability, meaning cash flow.

Leading financing companies set simple home loan eligibility both for primary borrowers and guarantors. These financing companies provide pre-approved offers to make the loan availing process hassle-free. These offers are also applicable for other financial products, including loans against property and others. Individuals can check their pre-approved offers by providing personal details.

Note: Knowing all these pointers mentioned above necessitates individuals to consider certain things, such as the type of guarantor the primary borrower has asked that individual to be. If it is a non-financial guarantor, individuals need to validate the borrower’s financial behaviour and act as an alternative contact if the lender cannot reach the primary borrower. On the other hand, if a primary borrower asks individuals to be financial guarantors, they have to pay all debts in case of loan default.

All the knowledge regarding a home loan guarantor will help individuals make an informed decision.