If there’s one area of the property market that‘s picked up in the last 4-5 months it’s the idea of using a guarantor for a mortgage. Its a great way for parents to help their kids buy a house and  I understand its become so ‘popular’ that ANZ bank is offering seminars on how it works! Its not a new idea. But it is one that has become increasingly necessary given the dual problem of high house prices in Auckland and the Reserve Bank toughening up on minimum deposit requirements.

using a guarantor for a mortgage

I’ve written before on using a guarantor for a mortgage so take a read if you want to recap that. In the past we would have said that using a guarantee is something you can do even if you haven’t saved a cent, all you needed was 1) a willing parent 2) to put up their house and 3) a really chunky income on your part.

You still need to save

While that’s still basically true you now need to demonstrate something extra.

That something extra is for your current spending patterns to amount to what you would otherwise be paying on a  mortgage. And for most people that means they need to be saving and to have been doing that for several months. The aim isn’t necessarily to build up a full 10% deposit rather to demonstrate the right behaviour to the bank.

You see, getting a mortgage is really just about showing you’re able to keep up a regular (and rather chunky) commitment over time. Naturally the bank will look at your job and your income to make sure you’ve got the dollars to do it. But there’s nothing like actually proving you can do it; there’s nothing like seeing it in your bank statements to prove it beyond all doubt.

What do I do then?

If your proposed mortgage repayments are going to be say $3000/month then your current spending patterns need to reflect that. For most people it’s simply a case of adding up your rent (say $500/week) and saving a bit on top ($500/month) to show you can do it.

Another easy calc to do is to add up the rent you’re currently paying plus whatever you’re saving and seeing what that is in terms of loan payments and what that buys in terms of loan amount and in turn what kind of house you can get. Don’t forget that Kiwisaver is something you can include in your regular savings too, not just the amount you put in the bank.

The rent plus savings idea is a pretty good rule of thumb and should tell you what you need to do if your ideal house isn’t within reach based on your current situation.

Reality check?

Having done this calculation for plenty of people over the last few months I can say we’ve inadvertently delivered a reality check to a few of them. Here they were thinking about a $600,000 house because their incomes are so fantastic only to have their spending patterns indicate that a $400,000 house is actually more realistic. Doesn’t give you a lot of choice in Auckland but if you can lift your savings habit for a few months then you might just prove to the bank that you’re good for it.

Either way you’ll know where you stand and if you up your game you’ll be in a position to buy a house with very little cash especially if using a guarantor for a mortgage is the thing that will let you bridge the gap between the cash deposit you’ve got and the total deposit the bank will need. Happy to talk you through it so do call.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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