Things to Consider Before Becoming a Home Loan Guarantor | Kotak Mahindra Bank - Home Loan Stories

For many people, it is convenient to buy their dream house with the help of a home loan. These loans can be repaid in flexible tenures through EMIs. However, there could be chances where the borrower is unable to avail a loan individually due to reasons like low credit score or low eligibility. At such times, lenders allow them to have a guarantor. Having a guarantor enhances the borrower’s creditworthiness. However, being a home loan guarantor has its challenges and liabilities.

If you are planning to be a guarantor for a home loan borrower, there are a few factors that you must consider.

 

Who is a guarantor?

A guarantor is a co-signer for a home loan who guarantees the repayment of the loan in case of default by the primary borrower. A guarantor can only be an individual. The lenders can ask for a guarantor in the following conditions -

  • If the borrower is self-employed without any professional qualification
  • If the loan amount is high
  • If the lender doubts the creditworthiness or repayment capacity of the borrower
  • If the borrower lives in a different city from where he/she is purchasing property
  • If the borrower’s income is irregular
  • If the borrower is planning to stay abroad for a long time
  • If the borrower has a transferable job

 

Who can be a guarantor?

To be a guarantor -

  • You should be above 18 years of age and an Indian resident
  • You must meet all the eligibility criteria of the lender
  • You should have a good credit score
  • Usually, banks prefer only close relatives, like spouse, father, siblings, earning children as guarantors

 

Factors to consider before being a home loan guarantor

Type of guarantor

You must know what kind of guarantor the borrower is asking you to be. If it's a non-financial guarantor, you would only need to certify the character of the borrower and represent them if the lender fails to contact the primary borrower. However, if it's a financial guarantor, you would be liable for the repayment of the loan.

Liability

You must be aware of your liability as a home loan guarantor. You would have to repay the loan in case the primary borrower defaults. You might also have to pay the penalty or other dues, if needed, failing which you could be termed as a willful defaulter.

Your loan eligibility

Being a guarantor can impact your home loan eligibility. Your eligibility would get impacted with the amount of loan taken by the primary borrower. Your role as a guarantor would also be recorded in the credit report, thus impacting your creditworthiness.

The consequence of default

Once you sign a deed of guarantee for a home loan, you are liable for the loan repayment in the same way as a primary borrower. If you fail to repay the loan in case of default by the primary borrower, your assets can be attached to recover the loan amount.

Should you be a home loan guarantor?

Being a home loan guarantor can be a huge liability. It could impact your loan eligibility and even your property in case of the primary borrower’s default. Therefore, you must scrutinise the borrower’s documents required for home loan closely and his repayment capacity. Your decision should be based on pragmatism and not plain emotions, which might make you regret your decision later.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.