When you apply for a home loan, the chances of getting your application approved depends largely on whether you meet the lender-specific requirements. Some of the important eligibility criteria the lenders have, include high credit score, a steady income, stability in employment, etc.
However, sometimes, if you meet the eligibility requirements, the lender may ask you to get the home loan documents signed by a guarantor. Generally, the lenders ask for a guarantor under the following circumstances:
- If you apply for a higher loan amount that is beyond the lender’s policies.
- If you have a low credit score or if the score does not meet the lender’s minimum score requirement.
- If you have a poor credit history, i.e., you have defaulted on your payments before.
- If you are involved in a high-risk profession.
- If you are nearing your retirement age.
- If your income is lower than the lender’s minimum monthly income criteria.
Factors to consider while signing as a guarantor
If any of your family members or a friend asks you to sign as a guarantor for their housing loan, you must be aware of its implications before you commit.
- Know if you are signing the home loan application as a financial guarantor or non-financial guarantor. A non-financial guarantor only acts as an alternate contract if the primary borrower cannot be reached. However, if you sign as a financial guarantor, you would be responsible to repay the amount if the primary defaults on the EMI payments. You can use a loan emi calculator to compute your monthly EMIs payable.
- If you sign the home loan documents as a financial guarantor, in the eyes of the lenders, you are equally responsible for repaying the loan as the primary borrower if they fail to repay the amount. Therefore, if the primarily applicant fails to repay the EMIs or delays the payment, you would be obliged to pay the amount. Not to mention, the delays in the repayment and non-payment of the EMI can have a significant impact on your credit score, and affect your own home loan eligibility.
- Whether you sign as a non-financial guarantor or financial guarantor, you must be aware of the home loan tenure. You will remain a guarantor until the primary borrower fully pays off the amount. Once the borrower pays off the last EMI, you must ask them to get a no objection certificate from the lender as well as a release of guarantorship. Without these documents, you cannot be free of the obligation legally.
- If you sign as a financial guarantor, you must be sure of your financial standing. You must be prepared for the worst situation and have the ability to make the EMI payments on time if the primary borrower fails to make the payments. Additionally, you must be aware of the terms and conditions of the loan mentioned in the document to be on top of the situation always.
Being a home loan guarantor may not be easy, as you share the repayment responsibility and become liable to pay the amount. If you wish to apply for a home loan in the future, it is better to politely decline them.