Are you amongst many thousands of people who seek a home loan? Getting a home loan approved from a bank is an easy way to own a home. There is little of a burden on your limited financial resources since you repay the loan in easy installments. However, getting a home loan approved is not easy as the lenders first want to secure the loan money. That is where a home loan guarantor comes into the picture.
When you visit a lender such as a bank or a financial company for a home loan, they will check your eligibility. They have many parameters on which you must come true to borrow an amount. The lenders will check your present income source, stability, repayment history and capability, and even credit score. That is their way to ensure that the borrower can repay the loan amount.
However, to ensure maximum safety of getting back the loan plus interest, lenders easily approve if borrowers can bring a guarantor into the agreement. Most lenders require the borrowers to guarantee the safe and secure repayment of the loan. That is where a home loan guarantor is required.
What is the role of a guarantor in home loan?
A loan guarantor plays a significant role in helping the borrower get the required loan amount from the lender. Since the lender usually first wants to be assured about the timely repayment of loan installments, a guarantor’s role becomes even more critical.
So, the loan guarantor assures the lender of loan repayment if the borrower fails to repay for any reason. The guarantor, therefore, gives the lender bank an extra level of security regarding the loan repayment.
Also, a guarantor becomes a tool for the borrower to get the loan approval smoothly without hurdles. Moreover, the lender may also approve the loan at affordable interest rates due to the guarantor. The terms and conditions, too, are flexible.
Who is qualified to be the guarantor?
When you aspire to become a home loan guarantor, understand who is qualified to become the guarantor. First, anyone with the financial capacity to repay a loan if the borrower defaults is eligible to become a guarantor.
So, any immediate family member, such as a sibling or a spouse. However, whoever intends to become the guarantor should have a dependable credit history and stable income.
What circumstances require the guarantee?
Before sanctioning your loan application, the lender will assess your eligibility, such as your repaying capacity, stable job, high credit score, etc. If fully satisfied, the lender will straightforwardly approve the home loan amount.
But if the lender is unsatisfied, you must bring in a guarantor. Here are the circumstances when the lender will ask you for a guarantor:
Repayment capacity
If the lender feels and verifies that the vast loan amount you applied for is beyond your repayment capacity, you will be asked to furnish a guarantor. Also, the lending bank may ask for a guarantor even when your credit history and repaying ability are good.
Credit score
If the lender finds your credit score too low, you might be asked to borrow with a loan guarantor. A low credit score for the borrower indicates high repayment risks for the lender. So, check your credit score. If it is too low, try to improve it by clearing your debts. A higher credit score will enable faster loan approval and competitive interest rates.
Age limit
Sometimes, the borrower’s age limit is not up to the criteria set by the lender bank. The borrower may be too old to take out a loan and, therefore, must apply with a guarantor. Find out the age limit set by your bank or financial company for the borrowers.
Income source
The lenders readily approve borrowers who have a stable income source. However, the lender will ask for a guarantor if someone is in a high-risk profession with an unstable income. That means you should borrow an amount well within your repaying capacity. Such an amount will be approved faster.
Tips to consider when becoming a home loan guarantor
Before you sign up to become a guarantor of a home loan for your family members or friends, here are some tips to follow:
Know your financial situation
Before becoming a loan guarantor, thoroughly assess your financial situation. The lender will first examine your repaying capacity, CIBIL score, liabilities, etc.
Understand the legal applications
As a guarantor of a home loan, you should fully know the various legal implications of being a guarantor. See that you offer full support to the loan borrower, which involves certain financial risks. It may also damage your credentials and credit score if the borrower and you do not repay the loan promptly.
Have an exit strategy
If you do not involve yourself as a guarantor, you should be able to exit. So, while becoming a guarantor, put in place an exit strategy. That means you can be involved in refinancing the home loan and getting an alternative guarantor.
These are the crucial aspects you must go through before applying for a home loan. Know that there are some risks for the guarantor, and you must be aware of the implications. You should approach a lender well-prepared with all the relevant documents and information.
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Wrapping Up
A home loan guarantor assures loan repayment if the borrower fails to do so. But ensure that you assess the risks involved in becoming the loan guarantor. The lender usually asks the borrower for a guarantor who takes responsibility for repayment. So, understand the legal implications and obligation of being the guarantor.
