If you apply for a home loan, and the amount requested is above the limit that has been set, or if you possess a poor credit score and history, the lending institution may ask for a home guarantor. The person you request to be your guarantor in such a situation will have to meet the lender’s home loan guarantor eligibility terms and conditions. When it comes to a home loan guarantor, there are two types – financial and non-financial home loan guarantors. In the case of a default on payment, the former is responsible to step in and continue payments on the loan. The latter is not liable to make any such financial payments, even in the case of a default.
When you refer to a home loan guarantor, you are referring to someone who takes the responsibility for you through the entire tenure of your home loan. That means that if, for some unforeseen reason, you are unable to make the payment or default on the same, then this person makes the payment, ensuring continuity.
The primary eligibility condition to become a home loan guarantor is that you must be financially stable. This is necessary as, in the case of a default on the loan, it is the responsibility of the guarantor required for the home loan to step in and continue payments towards the loan. Each lender has their own set terms and conditions to be a home loan guarantor, and if you fulfil these, you can qualify to be the same.
When it comes to securing a housing loan, lenders will request you to present a guarantor in the following cases:
If the loan amount requested is higher than the limit set by the lender
If you as a borrower have a low credit score/credit history
If you as a borrower are about to retire soon
If you as a borrower are involved in a job that is classified as ‘high-risk’
If you as a borrower do not have a fixed salary/, do not meet the income norms established by the lender
If you are considering becoming a home loan guarantor, you must necessarily keep the following documents handy:
Proof of Identity
Proof of Address
Documents showcasing income details
Copies of your Bank Account Statements
Statement of your Assets and Liabilities
Before you consider becoming a home loan guarantor, you must keep the following points in mind:
Type of Guarantor: When it comes to the aspect of a home loan guarantor, there are two types – financial guarantors and non-financial guarantors. As the former, you will have to submit your financial documents as well as make payments in the case of a default on the loan payment. If you sign up as the latter, your main task is to fulfil the role of a character witness, and the lender may contact you only if they are unable to reach the borrower.
Guarantor’s Obligation: If you are a financial guarantor, you must make payments towards the loan if the borrower defaults. If you fail to do so, you will be listed by the lender as a ‘wilful defaulter’.
Credit Rating: In the case of a default on the loan by the borrower, the home loan guarantor’s credit score drops as well and can affect your future prospects of securing a loan.
No Objection Certificate to Release you from a Loan Agreement: Even in the case of full repayment of the loan amount, only when the lender issues a No Objection Certificate (NOC) can you officially be declared as being debt-free.
A home loan guarantor is not necessary to secure a home loan. However, if the borrower does not meet the requirements set by the lender, then having a home loan guarantor is a must.
Anyone who is financially stable, has a good credit history, and meets the norms set by the lender, is eligible to become a home guarantor.
Yes, a family member can become a home guarantor if they meet the home loan guarantor eligibility set by the lender.
Before approving a home loan guarantor, the lender will check their credit history and credit score to check for their ability to make payments on time.
If you are unable to find a guarantor, you can apply for a home loan with a co-applicant, show sufficient income, ask for a lower loan amount, and seek alternative lenders.