A guarantor loan is when someone else, usually a parent, backs your home loan with the equity in their own property. For a buyer with a good income but a thin deposit, it can be the difference between waiting three years and buying now. For the person giving the guarantee, it is a serious commitment, and it deserves a proper conversation before anything is signed.

What a guarantor actually does

The guarantor does not usually put cash in. Instead the lender takes a security interest over part of the guarantor's property, which makes up the gap between the deposit you have and the deposit the lender wants. That can mean borrowing up to the full purchase price, or close to it, without paying lenders mortgage insurance. Our explainer on LMI covers why that matters.

Most lenders limit the guarantee to a set amount rather than the whole loan. Once your loan balance falls, or your property value rises, the guarantee can often be released. That release is something you want to plan from day one.

Who can be a guarantor

This varies between lenders, but generally the guarantor needs to be a close family member, own property with enough equity, and have the income or assets to show they could cover the debt if they had to. Most lenders accept parents, and some will also take grandparents, siblings or other close relatives. Others are stricter, so who you choose and which lender you pick need to be sorted out together.

What the guarantor is risking

If the borrower stops paying and the property does not sell for enough to clear the debt, the lender can look to the guarantor for the shortfall, up to the amount guaranteed. In plain terms, a parent's home is the backup. That is why lenders usually insist the guarantor gets independent legal advice, and why we encourage it too.

  • Their borrowing power. A guarantee can count against the guarantor if they want to borrow themselves later.
  • Their retirement plans. Equity tied up in a guarantee is equity they may want for something else.
  • Family relationships. Money and family can be a tricky mix if circumstances change, such as a job loss or a relationship breakdown.

Limiting the exposure

A guarantee does not have to be for the whole loan. Many families cap it at the amount needed to cover the deposit shortfall. Capping it keeps the guarantor's risk smaller and makes it easier to release once the loan shrinks. Ask about this early, because how lenders handle a limited guarantee is not uniform.

Alternatives worth comparing

  • A government scheme. Eligible first home buyers may be able to buy with five per cent down and no LMI. See our guide to the 5 per cent deposit scheme.
  • A gifted deposit. If family can afford to give rather than guarantee, a gift can be simpler, though it is not recoverable.
  • Saving a little longer. Sometimes a smaller gap is easier to close than it looks. Our article on how much deposit you need walks through the trade-offs.

Getting the structure right

The details matter more than the label. How much is guaranteed, which property backs it, how the loan is split and when the guarantee can come off all change the risk for everyone involved. If you are thinking about asking a family member, or being asked, get in touch or call 1300 001 755. We are licensed credit advisers based in Forestville, helping buyers and families across the Northern Beaches and North Shore.

Frequently asked questions

What is a guarantor home loan?

It is a loan where a family member, often a parent, uses the equity in their own property as extra security so the buyer can borrow with a smaller deposit.

Does a guarantor have to pay my deposit?

Usually not in cash. The guarantee covers the gap between your deposit and what the lender requires, using the guarantor's property as security.

Can a guarantor be removed later?

Often yes, once the loan balance falls or your property value rises enough that the lender no longer needs the extra security. Conditions vary by lender.

Should a guarantor get their own advice?

Yes. Lenders generally require the guarantor to take independent legal advice before signing, because their own property is at risk.

General information only. It does not take your objectives, financial situation or needs into account, and it is not credit or financial advice. Lender policy, rates and eligibility change regularly and vary between lenders — talk to us about your own circumstances before acting on anything here.