Can’t Afford a Big Deposit? Guarantor Loans Might Help You Buy Sooner For many Australians, saving up for a home deposit feels like an uphill climb. But if you have a supportive family member, a guarantor home loan could help you step into the property market sooner. Rather than saving the full 20% deposit, you can have a family member—such as a parent or sibling—use their home equity to guarantee part of your loan. It’s a popular option among first-home buyers who want to avoid lender’s mortgage insurance (LMI) and fast-track their buying plans. Here’s how it works, who’s eligible, and what both you and your guarantor need to consider.
How a Guarantor Loan Works With a guarantor home loan, a close family member uses a portion of their property’s equity to support your home loan. This means you may not need to provide a deposit or pay for LMI, which can save you thousands. You still make all the repayments—but if you default, your guarantor may be required to step in. This makes it a shared financial responsibility, so both parties should fully understand the risks.
Who Can Apply? Borrower must: ● Be 18+ and an Australian citizen or resident ● Have a steady job and good credit history ● Buy a residential property (not commercial) ● Borrow up to 100–110% of the property value
Guarantor must: ● Be an immediate family member ● Own a residential property with at least 20% equity ● Be financially stable with a good credit record
Step-by-Step Loan Process 1. Choose a guarantor 2. Apply for a home loan and include guarantor details 3. Property valuation of the guarantor’s home 4. Loan assessment and approval 5. Settlement and loan release
You may also be eligible for First Home Owner Grants (FHOG) and stamp duty concessions to help lower your upfront costs.
When Can the Guarantor Be Removed? Once your loan-to-value ratio (LVR) drops to 80% or below—typically after you’ve built enough equity or repaid part of the loan—the guarantor can usually be released from their obligation. Some lenders may allow this even at 85% LVR for certain professions.
What Are the Risks? For Guarantors
● Financial risk if the borrower can’t repay ● Impact on their own borrowing capacity ● Possible credit score damage ● Legal and emotional complications
For Borrowers ● Higher debt from borrowing 100–110% ● Limited refinancing options until the guarantor is released ● Risk of LMI if the guarantor is removed too early ● Property may fall into negative equity if values drop
Key Tips Before Applying Borrowers should: ● Avoid borrowing more than needed ● Make extra repayments to build equity ● Monitor credit score and repayment health ● Choose a stable property with long-term potential
Guarantors should: ● Choose a limited guarantee if possible ● Understand the legal obligations ● Review their own financial plans
● Put agreements in writing
Using a Guarantor to Buy Your First Home: What You Need to Know
Can’t Afford a Big Deposit? Guarantor Loans Might Help You Buy Sooner For many Australians, saving up for a home deposit feels like an uphill climb. B...
