What Is A Guarantor Home Loan?

A guarantor is usually a close relative, such as a parent or sibling, who uses their own home equity to finance your loan. While you sign the primary contract, the guarantor signs a separate agreement to cover any defaults.

They generally do not share in benefits like living in the property or using the loan, but their role provides the lender with added security.

Most lenders require a strong family relationship between the borrower and the guarantor to approve the loan application.

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?

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
• nvestment 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.

• 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.
• 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.

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 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.

In many cases, this is done through a limited guarantee, where the guarantor secures only part of the loan rather than the full loan amount. For example, the guarantor may secure 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

Imagine you want to buy a $600,000 home but only have a $60,000 deposit (10%). To waive LMI, lenders typically require a 20% deposit ($120,000). A guarantor can use their property’s equity to secure the $60,000 gap, allowing you to qualify for the loan without needing further savings.

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.

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.