Family Pledge Loans - Borrow 100% for Your Property Purchase
Enhancing your financial future has never been easier with a family pledge loan. Use equity in the home of an approved guarantor and secure yourself a loan.
What is a family pledge loan?
A family-pledge loan is a type of loan that uses an asset owned by a family member (usually real estate) as collateral. This repays the lender if the borrower fails to do so, making it an attractive option for borrowers unable to provide traditional forms of collateral.
A family-pledge loan can benefit those with limited funds or credit history since the lender is assured of repayment. It also allows borrowers to receive larger loans than they may otherwise be able to qualify for.
In addition, the interest rates and terms are typically more flexible than other types of loans.
A family pledge loan enables a family member to use the equity in their house to guarantee your mortgage.
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Why do property investors use family pledge loans?
Property investors often use family-pledge loans because they can secure a loan without relying on their credit standing or assets.
The presence of collateral from an asset owned by a family member increases the lender’s confidence and reduces the risk that it will not be repaid.
This type of loan is also attractive because it has relatively low-interest rates and often comes with flexible repayment terms.
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How does a family pledge loan work?
With a family pledge, you can get a home loan using the equity in your parent’s or another family member’s home. Only immediate family members, like parents, grandparents, and siblings, can be guarantors.
The guarantor promises to back your loan with their property. If you can’t repay the loan later, your lender may make your guarantor pay all or part of the debt.
Example of family pledge loan
If you want to buy a house that costs $500,000, the bank will lend you $400,000 and ask for a 20% down payment of $100,000.
If you can’t pay the $100,000 down payment, the bank will ask you to pay for lenders’ mortgage insurance.
Let’s say that someone in your family has a home worth $2,000,000 and a loan of $100,000. Since there is enough equity, they can offer the bank $100,000 from the property’s equity as security instead of making the borrower pay for lenders’ mortgage insurance.
Who can be a guarantor for a family pledge loan?
Selecting who can be a guarantor to make a family pledge is a big decision. It must include the following considerations -
Most banks and lenders prefer that someone in the immediate family back a Family Pledge loan, but you should check with them first.
The family member must have strong equity ownership in the property. This equity will function as the bank’s guarantee.
Most banks prefer Australian residents as family guarantors. They should also be over 18 and under 65.
How much can I borrow with a family pledge loan?
There is no such limit. You can borrow up to 100% of the purchase price of your new property.
Stamp Duty and legal fees are only a couple examples of the additional expenses you should expect to incur when buying a home.
But the borrowing amount also depends on the size of the loan you want and whether or not your family member is ready to guarantee a portion of it, and you should also be sure you can afford the monthly installments.
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