Things You Must Know Before You Become A Home Loan Guarantor

Got a request to become a home loan guarantor from your close ones? If yes, then this article is for you, where we will be discussing the role of a guarantor in a home loan and the things you must know before you accept the request to become one.

Who Is A Guarantor In A Home Loan?

A guarantor in a home loan is a person who co-signs the loan application and takes responsibility for repaying the outstanding loan amount with due interest in case of default by the primary borrower.

Once you become a home loan guarantor, you are equally liable for the complete repayment of the outstanding loan amount. The guarantor assumes the role of the primary borrower in case of default.

So, the next question arises about the necessity of a guarantor while purchasing a home loan. The answer is that having a guarantor is not a mandatory requirement.

Only under the following circumstances can a lender ask a home loan applicant to bring in a guarantor:

• If the borrower is a self-employed professional or lacks any professional qualification.
• If the borrower lacks creditworthiness or has a low credit score.
• If the home loan amount is high.
• If the repayment capacity of the borrower is questionable.
• If the borrower resides in a different city from where the property is purchased.
• If the borrower has a transferable job or is staying abroad.
• If the borrower is close to his/her retirement age or the loan tenure matures after the retirement age.

EMI of a home loan depends on certain factors. Some of the main factors are monthly salary income or business income, how healthy your credit score is, and fixed debt commitments. Depending on your agreement with Grihashakti, the EMI amount could consist of other components such as insurance costs. SMFG Grihashakti’s INR 15 lakh home loan is offered at competitive home loan rates, aiding you in buying an apartment of your choice. The below table shows an illustrative understanding of INR 15 lakh home loan at an interest rate of 7.99% p.a. and 8.99% p.a. You will notice the change in the EMI amounts across tenures. These are estimated EMI amounts without additional charges that could be applicable as per the terms agreed upon.

The lender can ask for a guarantor if any of the above factors are discovered while verifying the home loan application.

What Is The Responsibility Of A Guarantor On Loan?

The primary role of a guarantor home loan is to provide security on behalf of the borrower to the lender. The role of a guarantor in a home loan comes into the picture only when the primary borrower fails to repay the home loan or dues to the lender.

If the situation arises, as a guarantor, you must repay the home loan as per the terms and conditions agreed by the primary borrower and within the due date.

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Who Can Be A Guarantor For A Loan In India?

Not every person can become a guarantor for a loan in India. The home loan guarantor eligibility is as follows:

• Must be an Indian resident citizen.
• Must be 18 years of age or above.
• Must have a good credit score of over 700.
• Must fulfill the income criteria and have a low debt-to-income ratio.
• Must be a close relative and earning member of the family, preferably.

Factors to Consider Before Being a Guarantor

1. Rules for loan guarantor:

Before co-signing the home loan application as a guarantor, you must check the terms and conditions with the lender and eligibility criteria. You must be aware of the total loan amount, penalties, and other dues related to the home loan repayment. As a guarantor, if you fail to repay the loan, you will be tagged a wilful defaulter.

2. Effect on loan eligibility:

Becoming a guarantor affects your future loan eligibility. Your loan application might get rejected by the lender as the role of the guarantor is reported in your credit report, thus impacting your creditworthiness. It will be regarded as a loan in your name until it is repaid fully.

Since a home loan has a long repayment tenure, you need to weigh the pros and cons before co-signing the home loan application as a guarantor.

3. Consequences of default:

Before becoming a home loan guarantor, you must be fully aware of default risks. If you fail to repay the loan, not only will you be tagged as a wilful defaulter, but also your assets can be attached to recover the outstanding home loan amount. It will have a long-lasting impact on your creditworthiness.

Documents Required For A Loan Guarantor

• Relationship with the primary home loan applicant.
• KYC documents.
• Address proof.
• Income details.
• Bank account statement.
• Copy of assets and liabilities along with supporting documents.

Conclusion

Becoming a home loan guarantor is a big responsibility and is much more than what meets your eyes. Not only does it impact your loan eligibility for a very long time, but it also brings along the consequences of default. Click here to learn more about housing loans and how you can apply for one.

Therefore, you should become a loan guarantor only if you are mentally prepared to take the additional financial responsibility. Also, before co-signing as a guarantor, you must be confident of the borrower’s repayment capacity, income status, and existing liabilities. You must scrutinize the borrower’s document and understand the risks involved.

Your decision to become a home loan borrower should be based on a practical and sensible thinking approach, not on an emotional quotient. Factor in all the risks before you become a home loan guarantor.