Use guarantor support, go alone or both?

Hi everyone,
I've just had my offer accepted on my 1st investment property and its now time to sort out the finer details of my finance. I have been pre-approved finance but if I use guarantor support I'd be able to save (I think).
Just wondering how you guys would attack it? Is it worth using my parents as guarantor to wipe of 8k of LMI? Should I keep my 55k and keep saving for the second IP deposit and just service the loan via minimum IO repayments?
Purchase price 402k,
Funds 55k
Guarantor support agreed to by parents.

 

Using a guarantor will likely allow you to build a larger portfolio faster. Essentially preserving your cash balance may allow (pending servicing) to double down on the portfolio size quickly. This may or may not be a good thing though, depends on the investments made and the performance of them.

Likely in the medium term, the guarantor will need to be unwound and would require some planning on how to do this out the outset (e.g. equity growth or loan pay down).

 

Welcome. Get your broker to run the numbers on the next purchase. If have a guarantor doesn't help with the next purchase then reconsider.

I'd also get some advice and do some research on risk management with guarantor loans. Set up a split for the guaranteed amount at the very least.

 

The question is what are you intending to do next? Using a guarantor can mean you've got more cash for later and it can save you money. If you plan to purchase another property in the foreseeable future you'll be a bit closer to that goal.

For some people taking guarantor support from family can have it's own price. For some family politics come into it, sometimes it can be a significant burden on the parents. Perhaps consider this as well.

In either case, also consider that it will take a bit of time before you're able to access equity in the property you're purchasing. There's exceptions, but generally you can't access equity until the loan is 80% of the property value (without the guarantee in place).

 

If I was your parent I'd say no to this. It's an IP not a PPOR. Stand on your own 2 feet and spend the $8K on LMI and keep the relationship.

 

I'm not 100% sure of what I want to do yet. Whether its put all of my savings into it until I get to the 80% to release the guarantor or wait 3-5 years for it to grow enough and then get it revalued.

 

I'm trying to get ahead and my parents are supporting me in my plans, they are proud. Essentially them going guarantor is no burden on them as they have no plans of selling up anytime soon.

 

I'm not sure what you mean by setting up a split?

 

I understand that but for the sake of $8K in my view it is not worth taking the risk as a guarantor and all that involves.

 

Jumping in before Terry gets here, have you considered a related party loan?

 

Instead of taking one loan for 105% take two, one for 80% and another for 25%. That way it's clear which bits what.

 

Can work quiet well - parents guarantor the IP allowing savings to be kept in offset to be used when buying PPOR.

 

I understand where you're coming from but many parents don't see it this way. What they see is that by signing a piece of paper, they are saving their kid $8k and helping them up the property ladder so they have more funds towards their next purchase.

 

I'd seriously consider avoiding the LMI by using the parents. You could pay them a fee instead of to the bank.

But rather than a mortgage over there property could they lend you the money?

 

I've submitted the paperwork. Second mortgage on thier property by me. Just waiting on approval now. My broker submitted all of our paperwork last Friday to CBA. I have a clause in my contract of 2 weeks finance which is up next Monday. Hopefully they hurry up!
If it doesnt go through on time I'm going to have to go alone. I've already teed it up with CBA by myself and they're ready to give me a formal offer of finance within a day. Hopefully I wont have to resort to this.
What do you guys think?

 

Has a valuation been ordered on the parents property?

 

You have teed it up to go with the branch if the broker channel doesn't meet the finance clause? Why not just have the broker restructure it?

Finance clauses get extended all the time, it's not unusual to get another week or so. If the other side refuse there's grace period to work with anyway.

 

Yes it was done last Friday.

 

It's my back up plan. Loan approved within a day or the broker restructuring. How long will that take him to submit it all get it approved and formally accepted?

 

Why did you ask this broker to work for you in the first place? Whats changed? Has the broker wasted your time? Cost you?

Why are you planning on wasting their time?

Branches have the same approval process needs to be followed as through a broker. Some supporting docs like payslips etc can be verified in branch, some managers have credit sign off to a certain level.

Not sure exactly with branch process for CBA, but in general a lot of employees at the branch level (and many brokers too!) promise the world prior to sign up, and then fudge until approval.

@Brady could probably elaborate better specifically for CBA, but if you are at CBA because the broker helped you choose them as the best option to meet your goals, don't ditch the broker.