There’s no doubt that having a house of your own is an invaluable asset. It is both a financial and sentimental milestone in life, after all!
With the skyrocketing property rates, however, financing a residential property is no cakewalk. Therefore, borrowing home loan money is an excellent way to finance this significant purchase.
But in case you’re borrowing a higher loan amount, lenders might ask you to enlist a loan guarantor. Why? Here’s everything you need to know about this role.
What is a home loan guarantor?
When you apply for a loan, you are supposed to repay the amount in the form of monthly instalments over a fixed tenure. And the EMIs are determined by the home loan interest rates set by the lender. Now, in the case of high-value loans, lenders might need to enlist a guarantor.
A loan guarantor is a person who guarantees that the borrower will repay the loan on time. This person is legally liable for any default made by the loan borrower and acts as an assurance for the lender.
When is a home loan guarantor required?
Here are a few scenarios where a lender might ask for a guarantor:
- The loan amount is beyond a specific limit.
- The applicant lacks financial stability and has a low credit score.
- The applicant has a problematic credit card or loan repayment history.
- The applicant lacks job security or is at an advanced age.
- The applicant is self-employed and earns less than the minimum income level.
Additional Read: What Happens When a Home Loan Borrower Passes Away?
Things to know before becoming a home loan guarantor
If you are considering becoming a loan guarantor for your sibling or friend, here are a few things you must be aware of:
1. Conditions to become a guarantor
To become a loan guarantor, you must fulfil the home loan eligibilityterms set by the lender. For instance, you must be financially stable and have a decent credit score. Your financial credentials will also be taken into consideration when you apply for the role.
2. Role of a guarantor
Different lenders can have different requirements from a guarantor, and you must be aware of the role before applying. For instance, there are financial and non-financial guarantors. A financial guarantor will have to take financial responsibility in case of EMI defaults. In comparison, a non-financial guarantor is a character certifier for the borrower.
3. Effect on loan eligibility
Becoming a guarantor can also affect your loan eligibility. This is because if the borrower defaults on the repayments, the onus of repaying the loan can fall on you, which can affect your credit score and finances considerably. Hence, if you require a loan in the future, your loan eligibility and home loan rates will be affected.
Additional Read: Why Should You Opt For Home Loan Refinancing When The Rates Are Low
So you see, there is much more to becoming a loan guarantor than what meets the eye. You must be confident about the borrower’s repayment capacity. After all, it is a vital financial decision that requires deep consideration.
Looking for a loan to finance your next abode? Turn to Tata Capital! We extend customisable loans at competitive interest rates that require minimal paperwork.
Calculate your monthly EMIs using our home loan EMI calculator and plan your finances better.