Home Loan Guarantor

A home loan guarantor takes responsibility for the repayment of the loan if the borrower fails to do so. This means that if, for some unforeseen reason, the borrower is unable to pay the EMI or defaults on the loan, then the lender may reach out to the guarantor.

The primary condition to become a home loan guarantor is that you must be financially stable. This is necessary as, in the case of a default, the guarantor is required to step in and pay the remaining instalments.

When it comes to getting a home loan, lenders will require a guarantor in the following cases:

• If the loan amount requested is higher than the limit set by the lender

• If the borrower has a low credit score

• If the borrower is about to retire soon and is less likely to have a stable source of income in the future, impacting his/her repayment ability

• If the borrower is involved in a job that is classified as ‘high-risk’

• If the borrower does not have a fixed salary or does not meet the income norms established by the lender

Guarantors are usually categorised into two types. These are:

• Financial Guarantor: You share the responsibility of repaying the loan with the applicant. This means that if the borrower defaults, the lender may approach you to recover the amount.
  

• Non-financial Guarantor: You have no obligation to repay the loan. You vouch for the applicant's reliability and credibility. While you share no financial burden, your reference boosts the applicant’s chances of getting the loan. If for some reason the lender cannot contact the borrower, they will request your help.

If you are considering becoming a home loan guarantor, you may have to submit these documents:

• Proof of identity

• Proof of address

• Proof of income

• Bank account statements 

• PAN card

• Statement of your assets and liabilities

Before you consider becoming a home loan guarantor, consider the following points:

• Guarantor’s Obligation: As a financial guarantor, you must repay the loan in case of default. If you fail to do so, you will be listed by the lender as a ‘wilful defaulter’.
  

• Credit Rating: In the case of a default, the home loan guarantor’s credit score drops as well. This can affect your future prospects of securing a loan.
  

• Exit Strategy: If you wish to exit the obligations that come with being a guarantor, you need to create a strategy. Consider a balance transfer or finding a new guarantor to transfer this responsibility.
  

• Trust: Agree to be a home loan guarantor when you are confident in the borrower's ability to repay. Communicate openly and discuss any expectations you may have. Trust between the guarantor and the applicant is crucial.