Key takeaways:
A guarantor home loan uses property equity as additional security, potentially helping eligible buyers purchase with a smaller deposit and avoid lenders' mortgage insurance (LMI).
Some lenders may allow borrowing of 100% or more of the purchase price with a guarantor, subject to sufficient security, affordability and lender criteria.
Guarantors take on legally binding financial obligations. If the borrower defaults, their finances and property could be at risk.
Guarantors may be released once the borrower has sufficient equity, often around 20%, subject to lender approval and formal release.
Alternatives include the 5% Deposit Scheme, Help to Buy and gifted deposits, each with different eligibility requirements, costs and financial implications.
A guarantor home loan allows a family member to use equity in their property as additional security for your home loan. This may help eligible buyers purchase with a smaller deposit and avoid LMI. However, guarantors take on financial risks, including potential liability if the borrower can't repay the loan.
Learn how guarantor home loans work, the risks involved and alternatives such as the 5% Deposit Scheme, Help to Buy and gifted deposits.
What is a guarantor home loan?
A guarantor home loan, also called a family guarantee or security guarantee, allows a family member or another eligible person to use equity in their property as additional security for your home loan.
You remain responsible for making repayments, while the guarantor provides security to the lender. Unlike a gifted deposit, the guarantor doesn't need to contribute cash upfront or become a property’s co-owner.
However, going guarantor is a legally binding commitment. If you can't meet your repayments, the guarantor may be liable for the amount covered by their guarantee, putting their finances and property at risk.
Depending on lender criteria, a guarantor home loan may also help you avoid lenders mortgage insurance.
You might also be interested in: LMI waivers for professionals: Who may qualify and how they work
How does a guarantor home loan work?
A guarantor home loan uses equity in a family member's property as additional security for your mortgage. This may help eligible buyers purchase with less than a 20% deposit and avoid LMI, subject to lender criteria.
The lender typically secures the guarantee against the guarantor's property. Some lenders also require both properties to be mortgaged to the same lender.
Example of how a guarantor home loan works
Say you're buying an $800,000 home with an $80,000 deposit (10%).
You'd need a $720,000 home loan, giving you a loan-to-value ratio (LVR) of 90%. LVR is your loan amount expressed as a percentage of the property's value. A family member could provide an additional $80,000 in property equity as security, which could help you avoid LMI.
Item | Example |
|---|---|
Property purchase price | $800,000 |
Your deposit | $80,000 (10%) |
Home loan amount | $720,000 |
LVR against the purchased property | 90% |
Additional security from guarantor | $80,000 |
Loan amount supported by the guarantee | $80,000 |
LMI | May be avoided, subject to lender criteria |
Aussie tip: Illustrative examples only. Excludes stamp duty, fees and other buying costs. The $80,000 guarantee provides additional security but doesn't reduce your $720,000 loan balance or automatically lower your LVR to 80%. Lender calculations depend on property valuations, loan structure and security requirements.
A guarantor doesn't guarantee home loan approval. The lender still assesses your income, expenses, debts and ability to repay the full loan.
Use Aussie's Borrowing Power Calculator to estimate how much you could borrow. An Aussie Broker can then help you understand your options and lender requirements.
Limited vs unlimited guarantees
The type of guarantee determines how much the guarantor could be liable if you can't repay your home loan.
Limited guarantee: Caps the guarantor's liability at an agreed amount, often the portion of the loan requiring additional security. Interest, fees and other costs may also apply, depending on the agreement.
Unlimited guarantee: May make the guarantor liable for the entire outstanding loan, including interest and applicable costs, without a fixed dollar limit.
Before signing, guarantors should check the maximum amount they're responsible for, what costs are covered and when the guarantee can be released. They should also seek independent legal advice to understand the risks, including the possibility of losing their property if the borrower defaults.
Who can be a guarantor?
A home loan guarantor is usually a close family member, such as a parent, grandparent or sibling, who owns property with enough equity to support your loan. Eligibility depends on the lender's requirements and the guarantor's financial circumstances.
Lenders generally consider:
Property ownership and equity: Whether the guarantor has sufficient available equity in their property to provide additional security.
Income and expenses: Their income, existing debts, living costs and ability to meet potential financial obligations.
Credit history: Their credit record and existing financial commitments.
Age and retirement plans: Their employment status, retirement plans and future borrowing needs.
Many lenders require guarantors to obtain independent legal advice before signing.
Independent financial advice is also recommended to help them understand how the guarantee could affect their finances and property.
Having an eligible guarantor doesn't guarantee loan approval. You'll still need to meet the lender's income, credit and borrowing requirements.
Can you borrow 100% or more with a guarantor?
Yes, some lenders may let you borrow 100% of a property's purchase price with a guarantor, provided you have sufficient additional security and meet their lending criteria.
Some lenders may allow borrowing above the purchase price to cover eligible costs. However, borrowing limits and eligible costs vary by lender and their policies.
Borrowing more means higher repayments and potentially more interest over the life of your loan. You'll still need to meet the lender's income, credit and affordability requirements. Some lenders may also require evidence of genuine savings.
Guarantor home loan vs 5% Deposit Scheme vs Help to Buy vs gifted deposit
Guarantor home loans, government schemes and gifted deposits may help eligible buyers purchase with a smaller deposit. However, deposit requirements, LMI, eligibility and financial risks differ.
Here's how the four options compare:
Comparison | ||||
|---|---|---|---|---|
Minimum deposit | May allow little or no cash deposit | 5% for eligible buyers; 2% for eligible single parents or legal guardians | Depends on the gift and lender | |
LMI | May be avoided | No LMI under the scheme | No LMI under the scheme | May apply with less than 20% deposit |
Financial risk | Borrower and guarantor | Borrower; government guarantees part of the loan to the lender | Buyer and government share property value changes | Borrower; family member provides a non-repayable gift |
Income caps | No scheme cap; lender criteria apply | $103,000 for individuals; $165,000 for joint applicants and single parents | No scheme cap; lender criteria apply | |
Property price caps | Lender criteria apply | Lender criteria apply | ||
Main trade-off | Guarantor puts their finances and property at risk | Smaller deposit means a larger loan | Government retains an equity share | Family member gives up the gifted funds |
General comparison only. Eligibility, lender approval and property price caps apply. The current published thresholds are $103,000 for individual applicants and $165,000 for joint applicants and single parents, based on the previous financial year’s taxable income. Thresholds are indexed annually.
Which home buying option could work for you?
Guarantor home loan: May suit buyers with limited savings who have a family member willing to provide property security. The guarantor takes on financial obligations until the guarantee is released.
5% Deposit Scheme: Eligible buyers can purchase with a minimum 5% deposit, or 2% for eligible single parents and legal guardians, without LMI. Since 1 October 2025, the scheme has had no income caps or waitlists. Property price caps and other eligibility criteria still apply. Learn more about the 5% Deposit Scheme or check your potential eligibility.
Help to Buy: Eligible buyers can receive a government contribution of up to 30% for existing homes or 40% for new homes, reducing their home loan amount. The government retains an equity share, which must be repaid based on the property's value. Learn more about how Help to Buy works.
Gifted deposit: A family member provides money towards your deposit without expecting repayment. Lenders may require a signed gift declaration and proof of funds. LMI may still apply, depending on your total deposit and loan arrangements.
Help to Buy cannot be combined with the 5% Deposit Scheme.
However, eligible buyers may also qualify for first-home buyer grants and stamp duty concessions, depending on their state or territory and circumstances.
What are the pros and cons of a guarantor home loan?
Before choosing a guarantor home loan, it's important to understand the potential benefits and drawbacks for both you and your guarantor. Here are the key advantages and disadvantages:
Potential pros | Potential cons |
|---|---|
Potential to avoid LMI: Additional security may help eligible borrowers avoid LMI, subject to lender criteria. | Property at risk: The guarantor could face financial loss or be required to sell their property if the guarantee is enforced. |
Smaller deposit: You may be able to buy without saving a 20% deposit. | Reduced borrowing capacity: The guarantee may affect the guarantor's ability to refinance, access equity or borrow more. |
No upfront cash contribution: Guarantors generally provide property equity rather than cash, although fees may apply. | Lender requirements: You must still meet income, credit and affordability criteria. Some lenders may also require genuine savings. |
Option to release the guarantee: The guarantor may be released once you meet the lender's requirements and receive approval. | Ongoing liability: The guarantor remains legally responsible under the guarantee until the lender formally releases them. |
A guarantor home loan isn't suitable for everyone. Before proceeding, both the borrower and guarantor should understand their financial obligations, the risks involved and the conditions for releasing the guarantee. Guarantors should also seek independent legal and financial advice.
What are the guarantor's risks?
Going as a guarantor on a home loan carries financial and legal risks that could affect your property, borrowing capacity and plans. If the borrower can't repay their loan, you may be required to cover the debt under the guarantee.
Here are four key risks to consider before agreeing.
1. Responsibility if the borrower defaults
If the borrower defaults on their home loan, the lender may require you to repay the amount covered by your guarantee, including applicable interest and costs.
If you can't meet these obligations, you could lose the property used as security. Your liability depends on the guarantee terms and the lender's enforcement rights.
2. Impact on borrowing capacity and credit history
A home loan guarantee may affect your borrowing capacity, even if the borrower makes repayments on time.
Potential impacts include:
Reduced borrowing capacity: Lenders may factor in your guarantee when assessing new loans, credit cards or refinancing applications.
Credit enquiries: A lender may check your credit history, leaving an enquiry on your credit report.
Credit reporting: Missed obligations under the guarantee could affect your credit history, depending on the circumstances and reporting rules.
A guarantee may affect future borrowing. If guaranteed obligations are not met, a default may be recorded, depending on the circumstances and reporting rules.
3. Changes to your financial circumstances
Your circumstances may change while the guarantee remains in place. Retirement, reduced income, separation or unexpected expenses could make it harder to meet your financial commitments.
A guarantee may also restrict your ability to sell or refinance your property, access equity or take out additional loans.
4. Impact on family relationships
Financial pressure can strain family relationships, particularly if the borrower misses repayments or the guarantee remains in place longer than expected.
Before proceeding, both parties should discuss their financial responsibilities, what happens if repayments are missed and how the guarantee may eventually be released.
For more information, read ASIC Moneysmart's guide to going guarantor on a loan.
Questions to ask before going guarantor
Before signing a home loan guarantee, consider:
Financial capacity: Could I afford the borrower's repayments alongside my own expenses?
Property risk: Am I prepared for the possibility of losing the property used as security?
Borrower's finances: Does the borrower have reliable income and a history of managing debt?
Guarantee limits: Is my liability capped, and could interest or fees increase what I owe?
Missed repayments: What happens if the borrower defaults?
Release conditions: When and how can I be released from the guarantee?
Future plans: Could the guarantee affect my ability to refinance, sell my property, borrow or retire?
Independent advice: Have I obtained independent legal and financial advice?
A guarantee is a legally binding commitment that may remain in place for years. Review the terms carefully and seek independent advice before signing.
How do you remove a guarantor from a home loan?
You may be able to remove a guarantor from your home loan once you've built enough equity to meet your lender's requirements. Many lenders consider releasing a guarantee when your loan-to-value ratio (LVR) reaches around 80%, although approval isn't automatic.
Paying down your loan or an increase in your property's value may help lower your LVR. The timeframe depends on your loan balance, property value and lender criteria.
Steps to remove a guarantor from your home loan
Check your loan balance and property value: Calculate your current LVR to see whether you may meet your lender's release requirements.
Request a guarantor release: Contact your lender to confirm its criteria and start the process.
Arrange a property valuation: Your lender may require an updated valuation to assess your available equity.
Complete the lender's assessment: The lender may review your income, expenses, credit history and repayment record to confirm you can maintain the loan without the guarantee.
Get formal confirmation: Your guarantor remains legally responsible until the lender approves the release and completes the necessary documentation.
Can you refinance to remove a guarantor?
Refinancing may allow you to remove a guarantor if your current lender won't approve a release. However, you'll need to qualify for a new home loan without additional security.
Refinancing may involve application, valuation and discharge fees. LMI may also apply, depending on your LVR and the new lender's requirements.
Can you get a guarantor for an investment property?
Yes, some lenders may accept a guarantor for an investment property loan, although eligibility and lending requirements can be stricter than for owner-occupier loans. Approval depends on the lender's policies, your financial circumstances and the security provided. The guarantor remains legally responsible under the guarantee, even though the property is being purchased as an investment.
An Aussie Broker can help you explore investment property home loans and understand which participating lenders may accept a guarantor.
Is a guarantor home loan right for you?
A guarantor home loan may be worth considering if you have a smaller deposit and a family member willing to provide additional security. However, it's important to understand the financial risks, particularly for the guarantor, whose property and future borrowing capacity could be affected.
Before deciding, compare your options, including the 5% Deposit Scheme, Help to Buy and gifted deposits. Prospective guarantors should also seek independent legal and financial advice before committing.
An Aussie Broker can help you explore participating lenders' guarantor home loan options, understand eligibility requirements and check which government schemes may besuited to your circumstances.
