Guarantee

Definition of "Guarantee"

Written by

Valerie Cohen

ERA Key Realty Services

The meaning of a guarantee covers a legal and financially-binding agreement signed between three parties involved in real estate or financial transactions. In this document, typically referred to as a guaranty, a third party or guarantor goes bail for the borrower. Additionally, they confirm and ensure that they will settle all financial obligations towards the lending institution or agency in time. 

Suppose the debtor can’t meet a deadline in reimbursing their debt. Then, this third party will step up to provide the contractual payment. Real-life examples of guarantee include signing an agreement for college tuition. 

What does the guarantee mean in real estate?   

In real estate transactions, the most frequent dilemma is buying a home with cash vs. a mortgage. Home purchases often imply signing a mortgage agreement with a money lending institution. However, not every homeowner can keep up with regular mortgage payments. If they fail to cover the mortgage payments, the lender will seek the guarantor to compensate for the unpaid debt. 

Individuals with poor credit scores will turn to a guarantor who has attained an outstanding credit history. Let’s take an offspring as an example who hasn’t registered a satisfactory credit score yet or couldn’t find ways to improve their credit rating. As a result, they will turn to their parents to act as third-party insurers. Therefore, the younger generation can obtain more favorable mortgage loan types by signing a personal guarantee.

What types of guarantees exist in real estate?

Distinct types of guarantees provide different levels of accountability on behalf of the guarantor. Let’s see the most significant!

1. An absolute guarantee refers to such agreements that know no restricting conditions for the creditor to submit an immediate request for collecting financial relief. That is if the borrower defaults on the initial deal.

1. A conditional guarantee involves specific terms and conditions stipulated in the contract. Being late with loan repayment isn’t sufficient to call the guarantor to account, demanding them to settle the debt. The creditor must take additional measures.

1. By signing a payment guarantee, the guarantor is obliged to repay the due credit once the debtor fails to pay the mortgage in time. The contract fixes a date after the repayment is late.

Turn to top-tier local real estate agents to learn more about mortgages, home credits, and the necessity of signing a real estate guarantee before purchasing a property!