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Home Loan Guarantor

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What is a Home Loan Guarantor?

Banking and non-banking finance companies such as Bajaj Finserv offer home loans to different types of people, with the middle-income group of salaried individuals as one of the major groups. For these applicants, a home loan is the only option available to purchase a property. When an applicant opts for a home loan, the homeowner does not have to pay the entire amount at a time, but repay the loan through monthly installments over a period of say 20 years or so. In turn, a home loan can save the borrower from having to compromise their personal savings or liquidity, while allowing them to fulfill their dream of owning their own home.

How does Home Loan Guaranteeing Work?

To be eligible for a loan, an applicant must meet all terms and conditions the lenders put forth. In some cases, although the applicant meets all terms and conditions of the lender, they may ask the applicant to have the loan document undersigned by a guarantor.

The lender may ask the applicant to enlist a guarantor when:

  • The amount they wish to borrow is beyond the limit of the bank policies
  • The applicant has a relatively weak financial standing, such as a low credit score
  • The applicant has a non-clean credit history such as problematic previous credit card/loan debt settlement issues
  • The applicant is at a high-risk job or is at an advanced age
  • The applicant is self-employed or earns less than the predetermined minimum income level

Lenders ask an applicant to have their loan application undersigned by a guarantor to ensure the loan will be paid back, in case the applicant defaults.

Eligibility of Home Loan Guarantor

A home loan guarantor needs to be sure of their own financial standing before assuming the responsibility of being a home loan guarantor for another person’s loan. They need to assume the worst-case scenario to figure out if they are capable of fulfilling the home loan EMI payments in case the applicant defaults. Moreover, the home loan guarantor must be aware of all the terms and conditions outlined within the loan document to meet the qualifications of home loan guarantor eligibility.

Who can be a Home Loan Guarantor?

As a home loan guarantor, one must be aware that once the papers are signed, they will be legally liable to service the loan in case the borrower defaults. However, if the home loan guarantor is a non-financial guarantor, they may not be financially liable for any defaults on the part of the borrower. Only financial guarantors are financially liable if the borrower defaults. Therefore, a home loan guarantor must be aware of his or role before signing the loan documents.

The financial home loan guarantor has the obligation of repaying the outstanding home loan along with any late fees due including interest, in case the original borrower defaults.

The financial home loan guarantor must also be aware that any default of the primary borrower will impact the credit score of the guarantor as well, making them look financially unstable. The financial home loan guarantor must also be aware that he or she remains legally liable until the original borrower has paid off the loan in full and has a NOC to get a release of guarantorship from the lender.

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