Guarantor loan

A guarantor home loan is a lending arrangement where a family member uses the equity in their property as additional security for your loan. This reduces your effective LVR to 80% or below, allowing you to buy with a low deposit or no deposit and avoid paying Lenders Mortgage Insurance. The guarantor does not make repayments on your loan and is only liable for the guaranteed portion if you default.

LMI is charged when your LVR is above 80% (meaning your deposit is less than 20%). A family guarantee provides additional security from the guarantor property, effectively reducing your LVR to 80% or below in the lender's assessment. Because the combined security covers the risk, the lender does not require LMI. This can save you $8,000 to $35,000 or more depending on the loan amount. Read more about LMI.

Some lenders allow you to borrow up to 100% of the purchase price (plus costs such as stamp duty and legal fees) with a guarantor home loan. However, most lenders still require you to demonstrate some genuine savings (typically 5%) even with a family guarantee, to show you can manage your finances. Our mortgage broker team identifies which lenders accept no deposit guarantor home loans and which require minimum savings.

Most lenders accept parents as guarantors. Some also accept siblings, grandparents, adult children (over 18), de facto partners, and other immediate family members. All owners on the guarantor property title must agree to become guarantors. The guarantor must own residential property in Australia with sufficient equity. Our mortgage broker team knows which lenders accept your specific family relationship.

A limited guarantee caps the guarantor's liability to a specific dollar amount, typically the portion needed to reduce your LVR to 80%. The guarantor is not responsible for the entire loan amount. This is the standard structure used by most lenders today. It significantly reduces risk for the guarantor while still providing the security the lender needs to waive LMI and approve your guarantor home loan.

No. The guarantor does not make any repayments. You (the borrower) are fully responsible for all loan repayments. The guarantor is only called upon if you default on your loan and the lender cannot recover the debt from selling your property. With a limited guarantee, the guarantor is only liable for the guaranteed portion, not the full loan amount.

If you default and the lender sells your property but the sale does not cover the full debt, the lender can pursue the guarantor for the guaranteed portion. With a limited guarantee, this is capped at a specific amount. In extreme cases, the guarantor's property could be sold to satisfy the guarantee. This is why independent legal advice is required and why our mortgage broker team ensures both parties fully understand the arrangement.

Yes. Most lenders require the guarantor to obtain independent legal advice from a solicitor before signing the guarantee. This is a consumer protection measure ensuring the guarantor understands their obligations, the risks involved, and the circumstances under which they could be called upon to pay. The cost of independent legal advice is typically $200 to $500.

The guarantor needs enough usable equity to cover the gap between your deposit and 20% of the purchase price. Usable equity is the guarantor property value minus any existing mortgage, staying below 80% LVR on the guarantor property. For example, if the guarantor property is worth $1,000,000 with a $400,000 mortgage, the usable equity is $400,000 ($1M x 80% = $800K minus $400K). Our home equity calculator helps you estimate.

Some lenders require the guarantor property to be unencumbered (no mortgage), while others accept properties with an existing mortgage, provided there is sufficient equity. In some cases, the guarantor may need to refinance their mortgage to the same lender as your guarantor home loan. Our mortgage broker team identifies which lenders work with your guarantor's existing mortgage situation.

The Home Guarantee Scheme is a government program where the government acts as guarantor, allowing eligible first home buyers to purchase with a 5% deposit without LMI. A family guarantee is a private arrangement where a family member provides equity as security. The government scheme has eligibility criteria and property price caps. A family guarantee has no government restrictions on property price or income, but requires a willing family member with sufficient property equity.

A gifted deposit is cash given by a family member with a signed gift letter confirming it does not need to be repaid. A family guarantee uses property equity as security without any cash transfer. A gifted deposit only avoids LMI if it brings your total deposit above 20%. A family guarantee can avoid LMI even with a very small deposit because it provides additional property security. The two can sometimes be combined.

Some lenders allow guarantor home loans for investment property purchases, though policies vary. Certain lenders restrict family guarantees to owner-occupied purchases only. Some require the borrower to not own any other properties at the time of application. Our mortgage broker team identifies which lenders on our panel accept guarantor home loans for investment property and structures the loan accordingly.

Most lenders require you to demonstrate some genuine savings (typically 5% of the purchase price held for at least 3 months) even with a family guarantee. Genuine savings show the lender you can manage your finances. Some lenders are more flexible and may accept rent payments or other evidence of financial discipline. Our mortgage broker team finds lenders that match your savings position.

Your borrowing power is based on your income, expenses, and existing debts, not the guarantor's income. A family guarantee helps with security (reducing LVR) but does not increase your serviceability. The lender assesses whether you can afford the full loan repayments on your own, without relying on the guarantor's income. The guarantor's equity provides the security the lender needs, but you must demonstrate you can service the loan independently.

A guarantor can typically be released once your loan balance falls below 80% of your property value (the 80% LVR threshold). This can happen through regular repayments, extra repayments, or your property increasing in value. Depending on the property market and your repayment rate, this might take 2 to 5 years. You or your mortgage broker apply to the lender, a new valuation is obtained, and the guarantee is removed from the title.

Generally, no. While the family guarantee is active, the guarantor property has a security interest (caveat or second mortgage) registered against it. The guarantor cannot sell or refinance without either releasing the guarantee first or substituting alternative security. This is an important consideration for guarantors to understand before agreeing. Our mortgage broker team explains all implications clearly.

Yes. Guarantor home loans are one of the most common ways first home buyers enter the market. If your parents have sufficient property equity, a family guarantee allows you to buy sooner with a smaller deposit and avoid LMI. First home buyers may also combine a guarantor home loan with the First Home Owner Grant and stamp duty concessions.

Yes. Self-employed borrowers can access guarantor home loans, though additional documentation (typically 2 years of tax returns) is required. A family guarantee helps self-employed buyers overcome the deposit barrier while still needing to demonstrate serviceability from business income. Our mortgage broker team finds lenders that are flexible with self-employed guarantor home loan applicants.

The lender assesses the guarantor's ability to service the guaranteed portion if the borrower defaults. This includes reviewing the guarantor's income, employment stability, existing debts, credit history, and the equity in their property. Some lenders are more thorough than others. If the guarantor is retired and self-funded, lenders may accept superannuation income or investment income as evidence of ability to meet the guarantee.

Yes, provided there is enough usable equity after accounting for their existing mortgage. Some lenders require the guarantor to refinance their mortgage to the same lender as your guarantor home loan. Others accept a second mortgage behind the existing loan. The key factor is whether the combined LVR on the guarantor property (existing mortgage plus guarantee amount) stays below 80%. Our mortgage broker team assesses this during the initial consultation.

The main risk is that the guarantor's property is used as security. If the borrower defaults and the sale of the borrower's property does not cover the debt, the lender can pursue the guarantor for the guaranteed amount. In a worst case scenario, the guarantor's property could be sold. A limited guarantee caps this liability. The guarantor also cannot freely sell or refinance their property while the guarantee is active. Independent legal advice ensures the guarantor understands all risks.

No. The Home Guarantee Scheme is a government guarantee that replaces the need for a family guarantor. You use one or the other, not both. If you qualify for the government scheme, it may be preferable because it does not place any risk on a family member. If you do not qualify (or the property exceeds the price cap), a family guarantee is the alternative. Our mortgage broker team advises which option suits your situation.

Yes. Guarantor home loans involve two parties, two properties, and lender policies that vary significantly. A mortgage broker compares policies across 35+ lenders, identifies which lenders accept your family arrangement, structures the limited guarantee correctly, ensures the guarantor obtains independent legal advice, coordinates settlement, and plans the guarantor release strategy. The service costs $0 because the lender pays the broker's commission.