Guide to Family Home Guarantees and Guarantor Loans
Comprehensive
For many single parents and first-time homebuyers, saving enough for a deposit can be challenging. The Australian government and some lenders offer programs designed to make homeownership more accessible. Two notable options include the Family Home Guarantee (FHG) and Family Guarantee Loans, which provide valuable pathways for eligible individuals to secure a home loan with reduced financial barriers. This guide combines key information on both programs, explaining how they work, eligibility criteria, and what borrowers and guarantors need to know.
Family Home Guarantee: Helping Single Parents Achieve Homeownership
The Family Home Guarantee (FHG) is an Australian government initiative that helps eligible single parents purchase a home with a low deposit. Managed by the National Housing Finance and Investment Corporation (NHFIC), the program aims to support single parents in securing stable housing without needing a large deposit.
Key Features of the Family Home Guarantee:
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Up to 5,000 guarantees per year are available until June 30, 2025.
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Eligible single parents can purchase a home with as little as 2% deposit, provided they can service the loan.
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The program is open to first-time buyers or those re-entering the market who do not currently own property.
Eligibility Criteria:
To qualify, you must:
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Be an Australian citizen or permanent resident, aged 18 or older.
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Be a single parent with at least one dependent child.
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Have a taxable income of no more than $125,000 in the previous financial year (child support payments are not included in this income cap).
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Be able to provide a deposit of at least 2% but less than 20% of the property’s value.
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Intend to live in the property as an owner-occupier (this requirement may be waived for active Australian Defence Force members).
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Be the sole applicant for the home loan, with only your name listed on the loan and property title.
Property Eligibility:
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The property must meet specific price thresholds, which vary by location (check the NHFIC’s property price cap table for details).
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Eligible property types include:
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Existing houses, townhouses, or apartments
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House and land packages
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Land with a separate contract to build a home
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Off-the-plan apartments or townhouses
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Keep in mind that specific timeframes and criteria may apply depending on the property type and contract terms.
Family Guarantee Loans: Leveraging Family Support for Your Home Loan
A Family Guarantee Loan allows you to secure a home loan with the support of a family member acting as a guarantor. This can help you enter the property market sooner, especially if you have the financial capacity to make loan repayments but lack a sufficient deposit.
How Does a Family Guarantee Loan Work?
A guarantor provides additional security for your loan by offering their property or term deposit as collateral. This does not involve transferring cash, but it helps reduce the lender’s risk, potentially allowing you to:
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Borrow up to the full purchase price of the home, sometimes even covering additional costs like renovations.
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Avoid Lenders Mortgage Insurance (LMI), saving you thousands of dollars typically required when your deposit is less than 20%.
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Access potentially lower interest rates since the loan-to-value ratio (LVR) is reduced with the guarantee.
Requirements for Borrowers:
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The guarantor is usually a close family member, such as a parent, grandparent, or sibling.
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Lenders may still require you to contribute some of your own savings, depending on their policies.
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You can ask the lender to release the guarantee once your loan balance falls below 80% of the property’s value.
Important Considerations for Guarantors
Being a guarantor is a significant responsibility, and there are important risks to consider:
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Legal and Financial Risks:
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You are agreeing to cover the borrower’s loan balance if they default on repayments. This could involve selling your property if necessary.
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If the guarantee covers the entire loan amount, your liability could be substantial, including interest and enforcement costs.
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Your own financial flexibility may be limited, as any redraw facilities on your loan may be frozen.
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Releasing the Guarantee:
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The guarantee can be released once the borrower builds sufficient equity in their home (usually when the LVR drops below 80%).
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If your circumstances change and you need to end the guarantee earlier, you may be able to refinance the loan, potentially paying LMI.
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Additional Requirements:
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Some lenders may require you to demonstrate that you can afford the guaranteed amount if the borrower defaults.
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You can withdraw from the guarantee before the loan is provided or if the final loan contract significantly changes from what you initially agreed to.
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Tips for Borrowers and Guarantors:
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Communication is Key: Ensure both parties understand the terms and potential risks involved before proceeding.
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Plan for the Future: Discuss an exit strategy with your guarantor, such as aiming to release the guarantee once your property gains sufficient equity.
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Seek Professional Advice: It’s recommended that both the borrower and guarantor consult with a financial advisor or mortgage broker to fully understand the obligations and risks.
Additional Resources
For more detailed information on the Family Home Guarantee and Family Guarantee Loans, refer to:
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info@fortifinance.com.au
0419 550 734
Disclaimer
This website has been prepared with all due diligence and care, based on the best available information at the time of last update. Fortifi Finance holds no responsibility for any errors or omissions within. Any decisions made by other parties based on this information are solely the responsibility of those parties. Capstone Mortgage Solutions Pty Ltd ACN: 665 796 234 is an authorised credit representative 547296 of Australian Finance Group Ltd ACN 066 385 822 (AFG) Australian Credit Licence 389087.
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