A guarantor can be a great option when considering purchasing a home. The use of this collateral vehicle can help younger home buyers get into their first homes with fewer down payments. But there are some significant considerations to be made before opting to sign a mortgage loan contract with the addition of a guarantor.

Additional Leverage

Adding a guarantor can help you secure no deposit home loans when you’ve found the perfect property, but haven’t quite saved enough for a down payment yet. Working around a down payment can be a fantastic jump start for those moving into their first homes. This way you can hold on to more of your savings for other necessities in the home and will have greater cash flow freedom in the first few months of being a homeowner. While a buyer isn’t always able to take advantage of this offer, many lenders are forgoing the down payment requirements in order to fund more new homeowners than ever before. With the help of a collateral backer, you can take out the full loan amount required to purchase the home and move in with haste.

A “no deposit home loan” is a great way to purchase a rental property as well. Converting a home into a rental property is easier than you might think and it begins with a firm financial foundation. Instead of sinking all your free capital into the home with a large down payment, you can make the quality of life upgrades and essential fixes throughout the house in order to entice renters to move in. Without the free capital to make changes to the property, you may be stuck paying back mortgage payments while the home sits empty. This is a nightmare scenario for any landlord looking to create a second stream of income through rent payments, as not only aren’t you taking in any cash, but you’ve got to pay out on the real estate as well. Utilizing the freedom of a no-deposit home loan is a great way to place your money into stylistic and peace of mind changes to a home, that will benefit its value and appeal to prospective tenants.

You will take on higher debt from the start.

While a no deposit home loan can set you off on the right foot, it also means that you will be incurring a larger debt upfront as well. With a no deposit loan, you will own less equity in the beginning and have to create this ownership stake through monthly mortgage repayments. The life of the loan may extend beyond that of a traditional mortgage because of the higher borrowed amount. This means that you may be forced to continue repaying the loan for many years longer than with a traditional mortgage loan. As well, with the extended life of the loan, you are likely to owe more in interest as it continues to accrue throughout the years.

Approaching a home loan the smart way.

No matter how you choose to finance your home purchase, it’s always a good idea to keep a handle on your credit score and revolving credit card debts. Saving and paying off debts seem to be a never-ending cycle for all of us. It can be incredibly hard to get debt-free, or to save “enough,” but constantly working toward these two goals is crucial to promoting strong financial habits and fiscal security for you and your family. Keeping track of your spending with a line of credit, and always paying off as much as you can on revolving balances is the best way to ensure that you will always boast a healthy credit score. As well, keeping balances low will help your cash flow when it comes to paying mortgage balances. Nothing stifles financial progress like a series of high monthly payments that eat away at your take-home pay month after month.

Utilizing a no deposit home loan with a guarantor might be the perfect solution for you, but think carefully about your options before taking out any type of mortgage.