What Are the Requirements to Become a Home Loan Guarantor?

A home loan helps a person in buying a house without spending an obscene amount of money at once. While the lender – usually a bank or an NBFC, does not have confirmation about the borrower’s ability to repay, it tries to assess their credit worthiness based on income, employment nature, assets, loan history, etc.

But sometimes, the borrower runs out of sufficient proof to apply for home loan, for which they can get a home loan guarantor on board. Who is a guarantor? Is it a good thing to be a guarantor? How can you become a home loan guarantor? Here are the answers to all questions related to a home loan guarantor.

Who Is a guarantor?

A guarantor is a person who takes the responsibility to repay the borrower’s home loan if they default in the future. The guarantor is usually a close relative, who agrees to provide a part of his/her homeownership to increase the borrower’s credit-worthiness. This helps the primary borrower get a home loan on more expensive properties.

Home loan guarantors are of two types – financial and non-financial. Where non-financial guarantors don’t face any credit rating setbacks or liabilities at the time of the borrower’s default; financial guarantors have to pay the remaining instalments as well as show the failure in their credit report – reducing the chances to secure credit at desired home loan interest rate, in the future.

Benefits of a Home Loan Guarantor

With a pile of obligations on their head, guarantors also receive benefits in return. They get to establish the borrower’s credit and payment history without actually spending any money. Even financial home loan guarantors don’t have to pay anything if the loan repayment goes on smoothly. This explains why a home loan guarantor is often a family member.

Home loan borrowers, along with extra-security of loan repayment (i.e. guarantor), get a myriad of advantages. The guarantor prevents the borrower from paying an LMI premium (short for Lenders Mortgage Insurance). Some guarantor schemes even provide easy home loans at some of the lowest home loan interest rates in India.

Although, the borrower shall properly understand a home loan before considering a guarantor. A great way to do this is by using home loan calculators – such as home loan EMI calculator and home loan eligibility calculator. These tools help a borrower assess and compare home loan interest rates, principal and EMIs based on different lenders. They shall also know if it’s possible to avail a guarantor for a home loan online.

Requirements to Become a Home Loan Guarantor

Although the rules and regulations regarding home loan guarantors differ between lenders, there are several standard eligibility criteria for a person to become a guarantor. A home loan guarantor should-

  • Be a minimum of 18 years of age
  • Have a satisfactory credit history
  • Not have applied for bankruptcy
  • Be of sound mind
  • Have read and understood all the responsibilities mentioned in the agreement
  • Have sufficient influence over the borrower, to pursue them to make timely payments within the home loan tenure

Apart from these basic requirements, the guarantor must be aware of their status and role regarding the home loan agreement. He/she should have set the worst-case scenario to borrower’s default and made alternate arrangements for the loan’s repayment.