When you apply for a home loan, you must meet the lender-specific requirements to get your application sanctioned. Sometimes, even if you qualify for the loan, the lender, depending on their assessment of your financial credibility, may ask you to provide a guarantor to sign the home loan documents before final disbursement.
Specific conditions when the lender may ask you to provide a guarantor for home loan
The financial organisations generally ask the home loan borrower to provide a guarantor under the following circumstances:
- The loan amount you want to borrow is beyond the limit as per lender’s policies. It is advisable that you use the housing loan EMI calculator to know the maximum amount you can borrow so that you can avoid the chances of rejection.
- Your credit score is much lower than the lender’s minimum score requirement.
- You have a poor credit history and have defaulted on the EMI payment of your past loan or credit bills.
- If you have opted for debt settlement of the credit card bills due to inability to repay the full amount.
- You work in a high-risk location or if your profession poses high risk to your life.
- If you are close to the maximum entry age limit, i.e., 65 years at the time of applying for a home loan
- Your income is lower than the minimum income required by the lender.
The fundamental reason why most of the lenders ask the home loan borrower to provide a guarantor to sign the papers is to ensure that they get an additional guarantee for the full repayment of the amount. When the guarantor signs the loan documents, they essentially assure the lender that if you default on the payment, they will repay the amount on your behalf.
Important factors to consider when you want to sign as a home loan guarantor
If you want to sign as a guarantor of a home loan for your friend or relative, it is imperative that you make an informed decision. Remember, once you sign the papers, you become legally obliged to repay the amount if the actual borrower defaults on the EMI payments.
Before you sign the home loan documents as a guarantor, you must ask the lender if you are signing as a non-financial guarantor or a financial one. If you are a non-financial guarantor, you would be an alternative contact person for the lender in case the actual borrower cannot be reached for any reason.
As a non-financial guarantor, you may not be obliged for raying the amount. However, if you sign the papers as a financial guarantor then you give your consent to the lender for being responsible for repaying the loan if the primary borrowers fail to repay the EMIs or delays the payments.
Another vital thing that you must ask the financial organisation before signing as a home loan guarantor is about your obligations as a guarantor. In most cases, if you are a financial guarantor, you are responsible for the outstanding loan amount.
While you may want to help your friend obtain the loan, you must know that when you sign the papers you share the repayment responsibility along with the primary borrower. For lenders, you are equally responsible for repaying the amount on time as the actual borrower. And, in case if you or the borrower fails to repay the EMI, it will affect your creditworthiness.
Thus, be aware of your roles and responsibilities before your sign as a home loan guarantor and make an informed decision.