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Acting as a Guarantor forYour Child's Home

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Buying Your First Home is Always Difficult

Buying the first home is always difficult. When a child is in their twenties or even early thirties, living in the city or when expenses are reasonably higher due to various experiences that the young usually indulge in, it becomes difficult to set aside the money needed to buy a house. The down payment is the biggest financial challenge. The second challenge is qualifying for a nice mortgage. There are many lenders with varying rates, the eligibility criteria would be a hurdle and the home buyer needs to manage their finances well so they can keep making timely payments without impairing their lifestyle. The credit history will also play a pivotal role in the mortgage pre-approval and approval process.

If your child is planning to buy a house, then you can make some contribution in many ways. You may want to pay a part of the down payment. You may even have a cash gift that takes care of the entire down payment. Parents are known to use the equity of their large home, a second property or an unused block of land to fund the down payment of their grownup child’s home. You could contribute whatever amount of money you can afford and whatever would be useful for your child’s mortgage.

Another effective way to help your child is to become the guarantor. It is quite possible that your child would fall short of the credit score requirements by just a score of points or a dozen odd points. He or she may fall short by a hundred points. The income and disposable part of the income, which is considered by the banks or mortgage lenders while processing home loan applications, may not be sufficient. There can be other red flags which would become the reason for rejection. Instead of having your child’s mortgage application turned down or some criterion playing spoilsport, you can chip in as the guarantor.

The moment you come on board as the guarantor, your child may become eligible for the mortgage. Special concessions may not be needed. A tiny shortfall in credit score will not be a deterrent. The lender will not impose high fees or unreasonable rates of interest. Your child would qualify for the mortgage, get approved sooner and would also get a good deal, including the loan to value ratio and the rate of interest.

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