Getting a new home is definitely a huge milestone in an individual’s life. A home can provide one with a sense of financial security since it is a rewarding investment option. Often, a Home Loan is a popular option for people looking to purchase a house.
A long-term investment
Investing in a home through a Home Loan is a long-term commitment that allows a Home Loan applicant to repay the loan over an extended period of 20 to 30 years.
We are going to tell you about guarantors on a Home Loan and also give you a few important factors to consider before you think of becoming a Home Loan guarantor.
Essential Reading: 5 Important Considerations Before Your Become A Home Loan Guarantor
What is the role of a guarantor?
There are several terms and conditions that Home Loan applicants need to satisfy to fulfil the eligibility criteria.
Some Home Loan providers require applicants to have the loan application signed by a guarantor.
Why do Home Loan lenders require borrowers to have a guarantor on the loan?
The lender may ask borrowers to have a guarantor on the loan if:
- The amount required to be borrowed is over and above a specific limit according to the lender’s policies.
- The loan applicant has a weak financial history or a low Credit Score.
- The borrower is employed in a job that is relatively unstable.
- The borrower is advanced in age.
- The applicant’s credit repayment is sketchy.
A bank will enlist a guarantor for a loan in order to make sure that, in case the applicant is unable to repay the due amount, the guarantor will repay the dues instead of the applicant.
Check This: Think Twice Before Becoming A Loan Guarantor
What you must think about before becoming a guarantor
Ask yourself a few important questions before consenting to become a guarantor to a Home Loan.
Are you signing as a financial or a non-financial guarantor?
Will you be consenting to be a financial or a non-financial guarantor? A non-financial guarantor only acts as a point of contact for the lender in the event that the applicant is unavailable or unreachable for some reason.
A non-financial guarantor is not to be held responsible in case the borrower cannot repay the loan, unlike a financial guarantor.
What will your obligations be as a guarantor?
Be clear about what your obligations will be as a guarantor. A financial guarantor is generally only obliged to repay the outstanding due on the loan plus any additional interest or late fee charges.
Additional Reading: Ten Ways To Save For The Down Payment On Your Home
If you stand as a guarantor, does it affect your own loan eligibility?
In the eyes of the lender bank, the liabilities of both the primary borrower and the guarantor are equal. Any default or late payments on the loan can impact the Credit Score of the guarantor. This will negatively affect the guarantor’s financial standing and Credit Report.
Additional Reading: Access Your Credit Information Report
What is the tenure of the loan?
Remember, if you are the guarantor on a Home Loan, you will be held responsible for the loan repayment until such time that the loan is completely paid off by the primary borrower.
When the loan is settled, the guarantor will need to obtain a No Objection Certificate (NOC) from the bank to release them from being a guarantor on the loan.
Are you aware of the terms and conditions of the loan?
Yes. Even a guarantor needs to be in the know about the various terms pertaining to the loan. As a guarantor, you need to be sure of your own financial capacity before agreeing to be a guarantor on a loan for someone else. Will you be in a position to step in and repay the loan in case the borrower defaults on his or her payments?
Additional Reading: Home Loan Default – How To Handle One
Being a guarantor on a loan is not a responsibility that you want to take on your shoulders without a fair bit of thought, so make sure you sleep on it before deciding.
Bonus Read: Loan Default Is Not The End!
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