What Is A Guarantor Home Loan?

A guarantor home loan allows a borrower to secure a mortgage without any deposit by having a family member act as a guarantor.

Homebuyers can borrow 100% to 110% of the property’s purchase price with a guarantor’s backing, which means you essentially skip massive deposits, and avoid LMI with a guarantor home loan.

In this article, we are going to discuss what a guarantor is, who can be your guarantor, and how you can use a guarantor home loan to finance your dream house.

What Is A Guarantor?

A guarantor, usually a close relative (parent or sibling), is someone who uses their home equity to finance your loan. You sign the primary contract, and the guarantor signs a separate guarantee agreeing to cover any defaults you make.

They don’t typically share in the benefits (such as living in the property or using the loan), but they trigger legal liability only if you fail. Their role gives lenders added security.

Who Can Be A Guarantor?

Most banks require a strong family relationship between the borrower and the guarantor. Here’s who typically qualifies:

• Parents (including step-parents and legal guardians)
• Co-borrower’s parents
• Adult children (in rare cases, children can guarantee a parent’s loan)
• Spouse or de facto partner (often to protect shared assets)
• Grandparents
• Siblings and step-siblings (some lenders allow this, case by case)
• Aunts, uncles or cousins (only if they had a parental role in your life)

For a deeper understanding of guarantor eligibility, lender requirements, and how it all works, visit our page on Who Can Be a Guarantor?.

How Much Can I Borrow With A Guarantor?

Having a guarantor allows you to borrow more than a standard loan, sometimes up to 105% or even 110% of the property value, depending on the lender’s criteria. This means you may be able to cover not just the purchase price but also additional upfront costs like stamp duty, conveyancing fees, and inspections. While there’s no strict borrowing limit, loans over $1 million often require additional financial checks and stricter lending criteria.

Here’s how much you can borrow with a guarantor loan:

• First-home buyers: Up to 105% of the property value
• Construction loans: Up to 105% of the total land value and construction cost
• Refinancing: Up to 100% of the property value
• Debt consolidation and purchase: Up to 110% of the property value
• Investment loans: Up to 105% of the investment property’s value

Your borrowing capacity will depend on factors like your income, monthly expenses, existing debts, and credit score, as well as your guarantor’s financial position. Lenders will assess these factors to ensure you can comfortably meet your repayments.

Guarantor Home Loan Requirements

• A qualified guarantor (usually an immediate family member) must be available.
• Must be an Australian citizen or permanent resident (temporary residents considered, case by case).
• Guarantors must have at least 20% usable equity in their property./li>
• Guarantors must obtain legal and financial advice before the loan is approved.
• The property must meet the lender’s valuation and lending criteria
• Some lenders impose restrictions on rural properties, off-the-plan purchases or high-density apartments.

How Do Guarantor Home Loans Work?

Guarantor home loans let a family member, usually a parent, use their home equity as partial security to help you buy a property. This lowers your loan-to-value ratio (LVR), potentially removes the need for Lenders Mortgage Insurance (LMI) and boosts how much you can borrow.

The guarantor typically secures only part of the loan, say, 20% of the property’s value, limiting their risk while still supporting you. If you miss repayments, the lender can recover that guaranteed portion from the guarantor, which may put their property at risk. Many lenders also let you release the guarantor once you’ve built enough equity or refinanced.

Guarantor loans are especially useful for first-home buyers who have family support but lack a large deposit. However, both you and the guarantor must meet the lender’s criteria, including income and credit checks.

Example of how a guarantor home loan works

You want to buy a $600,000 home but have only a $60,000 deposit (10%). To waive LMI, most lenders need a 20% deposit ($120,000). A guarantor can use their property’s equity to make up for the $60,000 gap, helping you qualify without needing more savings.

Pros And Cons

Guarantor home loans can be a gamechanger for you, it can help you get your dream house with a smaller deposit, but there’s always the element of risk for your family members who are putting their finances on the line.

And while that kind of support from your family is powerful, it also comes with emotional and financial responsibilities for both parties. So before jumping in, it’s worth taking a moment to think through the pros and cons.

Pros

• Helps you enter the property market sooner with a smaller deposit.

• Helps you avoid LMI.

• Get larger loan amounts approved with a guarantor.

• The guarantee doesn’t have to be permanent.

• Helps you improve your credit history.

Cons

• If you default, your guarantor is liable for the guaranteed loan portion.

• Your guarantor loses the ability to take out other loans.

• Personal relationships may take a hit with a guarantor loan.

• Guarantor’s credit report could be negatively affected.

• In worst case scenarios, the guarantor’s property could get seized.

Final Words

A guarantor home loan can open the door to homeownership sooner, especially when saving a large deposit feels out of reach.

It is, however, a big commitment for both you and your guarantor. So, understanding the risks and responsibilities associated with a guarantor home loan is important before you apply.

To discuss your options with a mortgage broker who specialises in guarantor loans, enquire online for free or call us on 1300 889 743.