High-cost real estate coupled with many individuals wanting to secure their dream home, has made home loans a popular financial product. Lenders often require one to fit in several terms and conditions when checking eligibility. If your close friend or family member is planning on getting a home loan, you may have been requested to be a home loan guarantor. As a guarantor, you commit to a certain level of responsibility. This makes it important for you tonote the undersigning before you commit.
Here are some factors that you must closely understand before becoming a home loan guarantor:
Financial or non-financial guarantor – In most cases, a guarantor must be identified either as a financial guarantor or a non-financial guarantor. The former is used for the simple purposes that include acting as an alternate contact in the case that the borrower cannot be reached. However, a financial guarantor is held liable if the borrower defaults with the repayments.
Effect on your home loan eligibility–As a financial guarantor, you will be just as liable for the home loan as the borrower. This essentially means that if the loan repayment is not made on time or the borrower defaults in any way, then the guarantor is just as liable. It will affect your credit score and thereby imply that you are not financially stable.
Loan tenure – The tenure of the loan is a vital aspect to know of when obliging to be a guarantor. As a guarantor, you too will be tied down by the loan just as the borrower. Thus, a shorter loan term or foreclosure will mean that you are relived from the role early-on. A NOC should also be obtained upon the completion of the tenure as this will help you obtain a higher credit score for yourself.
Own financial standing – When assuming the role or responsibility of a guarantor, you must evaluate your own financial standing. Read the conditions and terms that are outlined as part of the loan agreement. Also, you must be prepared for the worst case scenario and if you are capable to handle the same.
As an informed ‘guarantor’, you must now know the factors and aspects that you must closely inspect when aiding a borrower.