Availing a home loan is one of the most significant monetary decisions of your life. While the majority of applicants are qualified on their own, there could be situations where the lender requires additional guarantees. That's when a home loan guarantor comes into the picture. You should be aware of the obligations, qualifying conditions, and required documents before agreeing to be a guarantor for a home loan, whether you or someone you know is involved. Here, we will discuss a guarantor home loan, including who a guarantor is, the rules governing the loan, and how it affects both the applicant and the guarantor.
What is a Guarantor Home Loan?
A guarantor of home loan is a type of loan in which a third party, such as a close friend, family member, or business partner, agrees to be liable for the borrower's repayment in the event of default. It provides extra protection to the lender, especially when the primary borrower fails to meet all the lender's conditions or has a poor credit record.
Is a guarantor required for a home loan? Not really. Most financial institutions will ask for a guarantor only if:
- The borrower's income is insufficient
- The borrower's credit score is poor or restricted
- There are issues with property in law or valuation
Duties and Responsibilities of a Loan Guarantor
Being a loan guarantor is no formality. A legal commitment is involved, and a long-term financial risk accompanies it.
Here's what it means to be a home loan guarantor:
- Repayment Obligation: If the borrower defaults, the guarantor must repay the whole loan, including interest and charges.
- Credit Score Impact: The loan gets recorded in the credit report of the guarantor, so missed payments or defaults can damage their creditworthiness.
- EMI Burden Analysis: Even though the guarantor is not paying the EMIs monthly, lenders consider this liability if the guarantor applies for another loan.
- Long-Term Liability: Home loans usually last 15 to 30 years. The guarantor can be held legally responsible for the full duration unless officially released.
You may also like: How Home Loan Subsidies Work and Who Can Benefit.
Loan Guarantor Eligibility
Prior to contemplating a person to be a guarantor, banks and housing finance institutions maintain a strict set of loan guarantor requirements. Typically, the person must:
- Be between 21 and 65 years old
- Possess a steady source of income
- Maintain a good credit history and CIBIL score
- Be an Indian resident with valid identification and address proof
- Possess minimal pending debt amounts
Particularly, who can serve as a guarantor? While there is no hard and fast rule, most lenders like to have close relatives such as:
- Parents or siblings
- Spouse
- Close friends or businessmen (if sound financially)
Documents Required for a Loan Guarantor
Like the primary borrower, a guarantor must submit a list of documents that establish identity, income, and financial standing. The home loan documents requirement for a guarantor will usually include:
- Identity verification (PAN card, Aadhaar card, passport, voter ID)
- Address verification (utility bills, ration card, rent agreement)
- Income verification (salary slips, IT returns, bank statements)
- Employment certificate or business registration
- Passport photographs
- CIBIL report or credit history (if required)
The lenders verify these details to ensure that the guarantor can take over financial obligations if required.
Rules for Loan Guarantor: What You Should Know
Several regulations for loan guarantors exist to secure both the guarantor and the lender:
- Legal Binding: The guarantor is bound by law to repay the loan in case the borrower defaults upon signing it.
- No Ownership Rights: The guarantor never gets any legal right or claim on the property bought with the loan.
- Removal Isn't Easy: A guarantor can't walk away from the transaction unless the borrower rolls over the loan or the lender agrees.
- Limited Guarantorship: In some situations, lenders allow a limited guarantee (for an amount), but that must be included explicitly in the contract.
Therefore, before becoming a loan guarantor, one must have a full understanding of these obligations and establish a mutual trust with the borrower.
Financial Planning for Guarantors
If you are planning to act as a guarantor, it is wise to review your current liabilities and future credit needs. Use the facilities of a house loan EMI calculator to understand what the impact would be if you accept the EMI payments. Think of how it can influence you from taking a home loan or any other loan by yourself later on as well.
Grihum Housing Finance: Your Credible Partner
Grihum Housing Finance understands that every borrower's financial profile is unique. Although we do not require a guarantor in all situations, we provide guidance when one is needed. We also ensure that both the borrower and guarantor are fully aware of their rights and obligations. Our customer care team, which assists with home loan document requirements, also guides you through the process from application to disbursement.
Conclusion
It is a serious undertaking that has monetary and legal consequences. While it can help a loved one fulfill their aspiration for home ownership, caution must be exercised to weigh the risks as well as the loan guarantor rules thoroughly. If you are considering applying for a home loan or being asked to act as a guarantor, ensure you are well-advised.Grihum Housing Finance is committed to assisting you through every step of the housing finance process, whether you are a guarantor or a borrower. Call us today for expert counsel and trusted home loan services.
