If you have a family member who owns property, they may be able to act as your guarantor to help you get a mortgage and buy a home more easily.
With your family member as a guarantor, you won't need to save 10% to 20% of the property's purchase price, and you can avoid a hefty lenders mortgage insurance premium.
It also means that if you can't repay your mortgage, your guarantor may have to sell, so they need to be prepared to take on that risk.
How does a guarantor home loan work?
If you have a close family member with equity in their property (that means, they own all or most of the property), they can guarantee your deposit. You still need to borrow money from a lender and repay it, but the guarantor provides security.
And that's the catch: if you are unable to repay the mortgage, your guarantor may have to.
To minimise risks, a guarantor can guarantee only a portion of a loan, say 20%. Once the borrower has repaid 20% of the loan (or the property has increased in value and the borrower now has 20% equity), the guarantor's property is safe even if the borrower fails to repay the remaining 80%.
Guarantor mortgage scenario
Let's look at the process with an example guarantor scenario:
Jai and Rahda purchase a $600,000 apartment with a 5% deposit ($30,000).
They estimate their lenders mortgage insurance (LMI) premium using Finder's LMI calculator and are shocked to learn they'll need to pay $22,789.
Rahda's parents own their home outright. They agree to guarantee a further 15% ($90,000) of the property cost. This eliminates the LMI cost completely.
Jai and Rahda repay $100,000 of their loan principal over the next 5 years. Rahda's parents are no longer liable because the $90,000 they guaranteed has been repaid.
Finder survey: How do people typically secure a low-deposit home loan?
Response
LMI
36.67%
Government grant
26.67%
Lender offer (E.g. essential worker loan,green energy loan)
16.67%
Guarantor
10%
Other
10%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
How much can I borrow with a guarantor?
With a guarantor, many lenders will let you borrow up to 100% of the value of a property. They may even allow up to 110%, which is enough to cover other costs like stamp duty and moving costs.
If you have a 5% deposit saved, having your parents guarantee a further 15% of the deposit means you can avoid paying LMI.
To find out if you're eligible for a guarantor home loan, first speak to your parents or whoever you're asking to guarantor your loan to confirm they're willing to be involved. You need to find out how much their property is worth and how much their loan is. This allows you to work out how much equity they have available.
For instance:
If their home is worth $700,000 and their loan is $450,000, they have $250,000 equity. This should be enough to guarantee part of your deposit.
If their home is worth $700,000 and their loan is $600,000, then they only have $100,000 equity – which may not be enough to assist.
The more equity they have, the greater the chance that the bank will accept them as a guarantor on your loan.
Once you've worked out that your guarantor has enough equity to help you, approach your bank or lender and see what their specific loan criteria is. Some lenders may require borrowers to have at least 5% of a deposit in genuine savings, even with a guarantor.
Expert insight
"Guarantor home loans can be a real game changer for first home buyers in Australia, offering a pathway into the property market with a smaller deposit – often just 5%. By leveraging a family member's equity, you can secure your first home sooner and start benefiting from property appreciation, which will contribute to your long-term financial growth. Having this option not only helps you overcome the daunting barriers of rising prices and strict lending criteria but also sets the stage for future wealth-building opportunities, making it an exciting and empowering step towards your financial stability and security."
John Pidgeon
Director and Head Property Coach of Solvere, Director of Envisage Property
Who can act as a guarantor?
Some lenders only accept parents as guarantors while others accept close relatives. Every lender has different requirements, but the following criteria usually apply:
Finances and credit. A guarantor needs equity in their property, a stable income and a good credit rating.
Residency. Lenders generally want a guarantor to be an Australian citizen or permanent resident.
Age guidelines. A guarantor must be over 18 and typically under 65.
Risks and benefits of a guarantor mortgage
Benefits
Get into the property market faster. Once you're in the market and paying off your loan, you can build up equity if the property grows in value. If you spend more time saving up a 20% deposit without a guarantor, the property prices can increase, meaning you need to save more.
Avoid paying LMI.Lenders mortgage insurance can add thousands of dollars to your home loan. With a guarantor loan, you can take this cost out of the equation.
Better chance of getting home loan approval. Having a guarantor will strengthen your home loan application and improve your odds of being approved.
Risks
The guarantor's property is at risk. If the borrower can't repay their loan and the guarantor can't make the repayments either, the guarantor's home could be repossessed by the bank.
You could be tied together for longer than expected. If the property market stagnates and you get no property price growth, it can take years and years to make enough payments to "release" the guarantor from the property.
Relationship strain. Mixing family and financial relationships can cause serious emotional strain. You should evaluate not only your finances but your relationship beforehand.
Thankfully, a guarantor is only liable to repay the amount they guarantee. Once that amount is repaid, the guarantor is released from further liability (the borrower, obviously, is not).
As long as you take the right steps, the Bank of Mum and Dad can be a fantastic option (as the benefits clearly show). But it is important to understand how to legally protect that financial gift, loan or advance so you can mitigate against the risks that could arise if something unplanned occurs.
Planning to act as guarantor for your child? Ask these questions first
Can I afford to go guarantor? Assess your financial situation realistically. While you shouldn't have to spend a cent, you do need to plan for a scenario where you suddenly become liable for the full amount you've guaranteed.
Can the borrower afford this loan? Try to assess the borrower's financial situation as clearly as possible. Don't make this judgement on instinct either: ask for hard evidence.
How is your relationship with the borrower? Just because you're close family doesn't mean you get along at the best of times. And with large sums of money involved even good relationships can become strained.
Have I sought professional advice? Get independent legal advice to make sure you fully understand the guarantor process.
How is a guarantor 'released' from a home loan?
Usually, you can apply to release the guarantor from the loan once the borrower has at least 20% equity in the property.
With 20% equity, you won't have to pay any LMI and your chances of getting the loan approved are strong. If your equity is less and your loan to value ratio is higher, say 85-90%, you're less likely to get your guarantor released until you have at least 20% equity.
To remove the guarantor, your lender will conduct a valuation on the property. Depending on the results of that valuation, you next step will either be to wait (if there's not enough equity yet), or apply with the lender to have the guarantor released.
Your bank may charge some administrative, government or settlement fees, which are usually around $300-500. If you are required to pay LMI (if your loan is above 80%), you'll need to fund this too.
What are my options if I can't get a guarantor for my home loan?
Having a parent who is able to guarantee your deposit is a privilege that many borrowers don't have. If you can't access a guarantor loan, here are some other options that might work:
A low deposit home loan.Low deposit home loans let you borrow up to 95%, but LMI can be very expensive. You can capitalise LMI costs, meaning you add the premiums into your mortgage and repay the premium as part of your monthly mortgage payment.
First Home Loan Deposit Scheme (FHLDS). Are you a first home buyer? If so, you can access the low deposit loan we mentioned, without having to pay a cent of LMI. Here's how the FHLDS works.
Family Home Guarantee. If you're a single parent, you may qualify for the Family Home Guarantee, which allows you to borrow with just a 2% deposit. There are strict eligibility criteria, though.
A family pledge or family guarantee home loan is a way of getting a mortgage with support from a guarantor. This is usually a family member who owns a property and is willing to help you out.
Many lenders refer to these loans as family pledge loans. But in many cases you simply apply for an existing home loan and attach a guarantor to it. Family pledges or guarantee home loans aren't specific products themselves.
Buying a house with a family pledge makes it easier to get your loan approved because the guarantor offers your lender more security. But this is where it gets riskier too. Family and finance don't always mix. If you can't repay the loan, your family member might have to.
A family pledge allows you to use the equity in your parents' property or another family member's property as security on a home loan. Guarantors are limited to immediate family members, including parents, grandparents and siblings.
The guarantor pledges to use their property to back your loan. If for whatever reason you can't repay the loan later, your lender may force your guarantor to pay all or part of your debt. This is what makes pledges risky.
While it was once standard practice to guarantee the entire loan and put your home on the line, today the security on the new home loan can be split and you can limit your guarantee. For example, the equity in your parents' property may be used as security for 20% of the loan, while the property you are purchasing will be used as security for the other 80% of the loan. So if you're helping your kids purchase a property for $500,000, your 20% guarantee is only $100,000.
Access finance. Most loans will have a minimum deposit that will have to be paid upfront in order to be accepted. This will usually be around 20% or as low as 5%. With a family guarantee you may be able to borrow more money and provide less of a deposit, which will allow you to buy a home sooner. Avoid LMI. Borrowing more than 80% LVR usually requires you to take out lender's mortgage insurance (LMI), but a family guarantee means this extra expense can be avoided. Increase borrowing power. A family guarantee can boost your borrowing power. The family guarantee will often be used to cover a deposit that can't be paid so you will be able to borrow close to 100% of the loan in some cases if properly secured. Often, guarantor borrowers can borrow 100% of a property value plus costs. Eligible for FHOG. Taking out a family pledge home loan means you are still eligible for financial assistance through the First Home Owners Grant. In addition, it also means you will be eligible to access most mortgage products from a lender.
Putting the family home at risk. If you're the guarantor you could be putting your family home at risk, so consider all your options before choosing this approach. Not receiving expert advice. If you're considering applying for a family guarantee home loan, it's important that you seek out independent financial and legal advice first. You need to understand exactly what the guarantor will be liable for in the event that you default on the loan. Not all banks offer family guarantees. Family pledge home loans aren't offered by all lenders, so the best thing to do is approach a mortgage broker for advice tailored to your needs.
A family guarantee is a type of guarantee that can be made to secure a property. This is done by securing the deposit shortfall to a property owned by the guarantor, such as your parents or a close family member. It is also known as a guarantor home loan.
A family pledge allows you to use the equity in your parents' property or another family member's property as security on a home loan. Guarantors are limited to immediate family members, including parents, grandparents and siblings.
While it was once standard practice to guarantee the entire loan and put your home on the line, today the security on the new home loan can be split and you can limit your guarantee. For example, the equity in your parents' property may be used as security for 20% of the loan, while the property you are purchasing will be used as security for the other 80% of the loan. So if you're helping your kids purchase a property for $500,000, your 20% guarantee is only $100,000.
How much do they have to guarantee? A common strategy is to guarantee enough equity so that the borrower avoids paying Lenders Mortgage Insurance (LMI). A parent will need to guarantee 20% of the purchase price of the new property if the borrower has no deposit. What can be bought with a family guarantee? The family guarantee can be used to buy a home or invest in residential property so buyers will be able to use normal home loans and investment home loans.
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To make sure you get accurate and helpful information, this guide has been reviewed by John Pidgeon, a member of Finder's Editorial Review Board.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 554 Finder guides across topics including:
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Can my mother act as guarantor if she is 85 and owns her property outright?
Finder
RebeccaOctober 22, 2022Finder
Hi Janelle,
Generally, a guarantor must be over 18 and typically under 65.
Thanks,
Rebecca
RayOctober 10, 2021
I know Westpac permit Guarantor’s to use a fixed term instead of their property to enable their children to achieve 20% and therefore not be liable for LMI. NAB no longer provide this since the Banking Royal Commission. Do you have a list of Lenders that provide Guarantor Loans with the security as Fixed Terms instead of the property. It seems illogical to provide a property as security when it is worth ten times the security required. Hope you can help.
Finder
SarahOctober 12, 2021Finder
Hi Ray,
Banks and lenders change their policies frequently. At the moment, we don’t compile a list of banks that offer guarantor loans secured against savings/fixed income instead of property, because the demand for this information is quite small, and the policies change too frequently for us to keep on top of them.
Westpac is one of the few banks that offer this type of guarantee, but interestingly BankWest, which is owned by Westpac, won’t accept a term deposit and requires property as security.
You also generally need to refinance the loan to the bank your child is taking their loan out with, so there’s a lot to consider when considering becoming a guarantor.
Hope this helps!
Cheers,
Sarah
KeithApril 8, 2018
We are selling an investment property which we have used as a guarantee for sons apartment which he is renting out while he works in Sydney.
His present bank require him to refinance and seem unwilling to use our home as equity. He has negative equity in the apartment due to recent alterations.
We want to transfer the guarantee onto our home which is paid for.
We have no outstanding debts. His
Are there any financial institutions that would accommodate this transfer.
Finder
MayApril 9, 2018Finder
Hi Keith,
Thanks for reaching out.
Best if you can speak to a mortgage broker who can take into account your circumstances as well as your son’s. They know a wide range of lenders in the market who can give more options for your son.
Cheers,
May
RachaelApril 22, 2016
We want to buy a house and looking into no deposit Lon with a guarantor but only my partner works $45k a year and I am on centrelink and we have two children. Would it be possible that any bank would lend to us we are looking at a house $160k
Thanks
BelindaApril 26, 2016
Hi Rachael,
Thanks for getting in touch.
Your ability to qualify for a home loan will depend on several factors; your combined income, assets, liabilities, credit history, and the lender’s eligibility criteria for a particular product.
Unfortunately, it can be difficult to qualify for a home loan if you’re receiving Centrelink benefits and if only one applicant is working as the lender may view you as a high-risk borrower. However, there are mortgage brokers who can help you find lenders, such as specialist or non-bank lenders, that are more likely to review your application.
When you apply for a no deposit or guarantor home loan, the application process can be more lengthy compared to a traditional home loan as the lender will need to assess the security and financial position of your guarantor. However, you can take measures to improve your chance of being approved. This may involve reducing your existing debts (e.g. credit cards) and making regular deposits into high-interest savings account to show the lender that you have financial discipline.
All the best,
Belinda
JadeNovember 23, 2015
Can I get a guarantor loan if the guarantor lives overseas and their equity is in the property they own overseas?
Finder
MarcNovember 24, 2015Finder
Hi Jade,
thanks for the question.
Lenders generally require the guarantor to be Australian citizens, although some lenders will allow them to be working or living overseas. If the loan is being secured with the equity of a property (and not cash), the property is usually required to be in Australia.
I hope this helps,
Marc.
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Can my mother act as guarantor if she is 85 and owns her property outright?
Hi Janelle,
Generally, a guarantor must be over 18 and typically under 65.
Thanks,
Rebecca
I know Westpac permit Guarantor’s to use a fixed term instead of their property to enable their children to achieve 20% and therefore not be liable for LMI. NAB no longer provide this since the Banking Royal Commission. Do you have a list of Lenders that provide Guarantor Loans with the security as Fixed Terms instead of the property. It seems illogical to provide a property as security when it is worth ten times the security required. Hope you can help.
Hi Ray,
Banks and lenders change their policies frequently. At the moment, we don’t compile a list of banks that offer guarantor loans secured against savings/fixed income instead of property, because the demand for this information is quite small, and the policies change too frequently for us to keep on top of them.
Westpac is one of the few banks that offer this type of guarantee, but interestingly BankWest, which is owned by Westpac, won’t accept a term deposit and requires property as security.
You also generally need to refinance the loan to the bank your child is taking their loan out with, so there’s a lot to consider when considering becoming a guarantor.
Hope this helps!
Cheers,
Sarah
We are selling an investment property which we have used as a guarantee for sons apartment which he is renting out while he works in Sydney.
His present bank require him to refinance and seem unwilling to use our home as equity. He has negative equity in the apartment due to recent alterations.
We want to transfer the guarantee onto our home which is paid for.
We have no outstanding debts. His
Are there any financial institutions that would accommodate this transfer.
Hi Keith,
Thanks for reaching out.
Best if you can speak to a mortgage broker who can take into account your circumstances as well as your son’s. They know a wide range of lenders in the market who can give more options for your son.
Cheers,
May
We want to buy a house and looking into no deposit Lon with a guarantor but only my partner works $45k a year and I am on centrelink and we have two children. Would it be possible that any bank would lend to us we are looking at a house $160k
Thanks
Hi Rachael,
Thanks for getting in touch.
Your ability to qualify for a home loan will depend on several factors; your combined income, assets, liabilities, credit history, and the lender’s eligibility criteria for a particular product.
Unfortunately, it can be difficult to qualify for a home loan if you’re receiving Centrelink benefits and if only one applicant is working as the lender may view you as a high-risk borrower. However, there are mortgage brokers who can help you find lenders, such as specialist or non-bank lenders, that are more likely to review your application.
You can read more about no deposit home loans and you can also compare 95% loan-to-value (LVR) home loans. We also have an article about home loans for Centrelink recipients which may help you.
When you apply for a no deposit or guarantor home loan, the application process can be more lengthy compared to a traditional home loan as the lender will need to assess the security and financial position of your guarantor. However, you can take measures to improve your chance of being approved. This may involve reducing your existing debts (e.g. credit cards) and making regular deposits into high-interest savings account to show the lender that you have financial discipline.
All the best,
Belinda
Can I get a guarantor loan if the guarantor lives overseas and their equity is in the property they own overseas?
Hi Jade,
thanks for the question.
Lenders generally require the guarantor to be Australian citizens, although some lenders will allow them to be working or living overseas. If the loan is being secured with the equity of a property (and not cash), the property is usually required to be in Australia.
I hope this helps,
Marc.