Government Grants & Family Guarantors

 All you need to know about Government Grants & getting Financial Help with Family Gaurantors.

Accessing Government Grants - Understanding the First Home Owners Grant

The First Home Owners Grant (FHOG) was launched on 01 July 2000.  It was designed to assist with offsetting the GST cost that was applied to home ownership.

In simple terms the First Home Owners Grant is a state government initiative to help first home owners buy their new first home sooner. It is a one off grant that is payable to first home owners that meet the ‘required’ criteria.  This means that qualification rules, amounts, supporting information and payment process can differ from State to State.

The grant is paid by the Office of State Revenue / State Revenue Office, but if you meet the standard qualifying criteria it can be processed by your credit provider, as an agent, and is usually paid at settlement or first drawdown for construction finance.

The way the grant is processed will differ from institution to institution. For example, some institutions may require the original grant application others may work on an electronic copy.  It is important therefore that you understand how the grant works in the State of purchase and what the credit providers requirements are or else the grant payment and settlement could be delayed.

The rules do change from time to time and if so usually at the beginning of the new financial year. To avoid being caught out by these changes it is good practice to register for updates and review their websites at the start of each financial year.

Getting Financial Help with Family Guarantors

What is a Family Guarantor?

There are many types of guarantor loan options but the most common is that of a family guarantor loan.  This is when the guarantor is directly related to the borrowers. Grandparents, siblings and other family members can be considered on a case by case basis but is not as preferred as a direct parent.

So What are the Benefits of a Guarantor Loan?

A family guarantor loan has 2 main benefits for a borrower or applicant.

  1. You don’t need a deposit, which means you can buy your home now.  (You may need to cover some costs along the way in most cases)
  2. Not having to pay Lenders Mortgage Insurance (LMI), which means a considerable amount of money saved.

How Does it Actually Work?

The new loan is secured by both the new property being purchased as well as the property owned by the guarantor. For the majority of guarantor loans we ask the lender to limit the guarantee secured on the guarantor’s property. This means that they are not liable for the entire amount of the loan, only a portion of it, usually only the 20% depending on the bank and situation.

What are the Risks to ‘Mum & Dad’?

On paper, the guarantor is ultimately liable for your home loan should you run into trouble. If you are having problems making the repayments on your home loan, seek assistance from the bank or your broker. Remember your house will be the first one where action is sought before the guarantor is contacted.

One of the greatest fears is that the bank will sell the guarantors home to cover any outstanding debt should you default. In reality, the banks will try everything to solve the problem before taking this drastic action.

Overall a family guarantee can be a great choice for families who are able to help out.  It can be cost effective and easy to set up.  However, its not for everyone so always ensure you seek help to decide what option suits you best.