If you’re struggling with a deposit or can’t meet strict lender requirements, a guarantor home loan might be your key to homeownership.
With average Australian home prices hitting the one million mark in March 2025 and the cost of living continuing to bite, many Australians are turning to family support when buying property. A guarantor loan lets a close relative or friend use the equity in their home to help secure your loan, often reducing your deposit requirement and avoiding Lender’s Mortgage Insurance.
We explain what a guarantor loan is, who it suits, how it works, and what to expect during the process. We’ll also explain how it compares to other options like refinancing or low-deposit home loans.
What Is a Guarantor Home Loan?
A guarantor home loan is a mortgage where another person, usually a close relative, provides part of their property as security for your loan. The home loan guarantor doesn’t hand over cash but instead backs part of your loan, typically around 20%, to reduce the percentage of the property’s value you’re borrowing, called the loan to value ratio (LVR).
If you default on your loan and the property is sold for less than the amount owed, the guarantor may be liable for the guaranteed portion. However, in most situations, the borrower makes repayments on their own, and the guarantor’s support is never activated.
This type of loan can help home buyers get into the market sooner, especially when saving a full deposit would take years.
Illustrative Example
A first-time buyer wants to purchase a $600,000 home but only has a $60,000 deposit (10%). Their parents step in as guarantors, using equity in their own home to secure the remaining 10% needed to reach an 80% LVR.
Without Guarantor:
| Item | Amount |
| Property value | $600,000 |
| Deposit (10%) | $60,000 |
| Loan amount | $540,000 |
| LVR | 90% |
| LMI cost (est.) | ~$17,000 |
With Guarantor:
| Item | Amount |
| Property value | $600,000 |
| Buyer’s deposit | $60,000 |
| Parents’ guarantee | $60,000 (remaining 10%) |
| Effective LVR | 80% |
| LMI cost | $0 |
The Outcome:
- Buyer saves around $17,000 in LMI premiums
- Can buy the home sooner without needing a full 20% deposit
- Parents don’t pay anything—just provide equity as security
Why Choose a Guarantor Loan?
Guarantor loans offer several benefits for both borrowers and lenders:
- Avoid Lenders Mortgage Insurance (LMI): LMI is a one-off insurance charge applied by lenders when your deposit is under 20%, covering their risk, not yours, in the event of default. A guarantor reduces the lender’s risk, helping you avoid this significant cost.
- Buy Sooner: Instead of waiting years to save a large deposit, you can potentially buy with as little as 5% deposit or sometimes even none, depending on the lender.
- Increase Borrowing Capacity: With a guarantor reducing the lender’s risk, you may be able to borrow more than you could on your own.
- Better Interest Rates: Because there’s more security on the loan, lenders may offer lower interest rates than standard high-LVR home loans.
- No Cash Transfer Required: Unlike a financial gift or loan from a relative, the guarantor simply provides security without reducing their liquidity.
How Do Guarantor Loans Work?
Here’s how a guarantor home loan works in practice:
- You apply for a home loan and nominate your guarantor, often a parent or close family member.
- The lender assesses your ability to service the loan and the guarantor’s ability to cover the portion they’re guaranteeing.
- The guarantor offers part of the equity in their own property as extra security, usually around 20% of the purchase price.
- Once approved, you buy the property and begin making repayments as usual.
- Over time, as your equity in the home grows, you can apply to remove the guarantor from the loan.
The guarantor only covers the guaranteed portion of the loan—not the entire amount. They also don’t have any ownership interest in the property.
Who Is a Guarantor Home Loan Best For?
A guarantor loan is ideal for:
- First home buyers with stable income but limited deposit savings
- Young professionals early in their careers
- Buyers in competitive markets needing to move quickly
- Self-employed borrowers who have the income but may struggle with standard loan documentation
- Upgraders who are transitioning between properties but haven’t finalised a sale yet
It’s not suitable for everyone. If your income is inconsistent or you have a poor credit history, a guarantor loan may not be the right fit—even with family support.
Who Can Be a Guarantor?
In Australia, lenders typically require guarantors to be:
- Australian citizens or permanent residents
- Immediate family members, such as parents, siblings, or grandparents
- Property owners, such as friends, with sufficient equity, usually at least 20%
- Financially stable, with a solid credit record.
- 18-65 years old in most cases, to ensure long-term capacity to guarantee the loan
Each lender has slightly different guarantor loan requirements, so it’s important to check the details.
What Are the Risks for Guarantors?
Being a guarantor on a mortgage carries real financial responsibility:
- Financial liability: If the borrower defaults and the property sells for less than the loan balance, the guarantor may have to cover the shortfall.
- Impact on borrowing capacity: The guarantee is treated as a financial obligation, which may limit the guarantor’s ability to take out new loans.
- Relationship stress: Financial arrangements between family members can sometimes lead to personal strain, especially if expectations aren’t managed upfront.
- Property market changes: If the borrower’s property loses value, the guarantor’s level of risk increases.
That’s why most lenders require the guarantor to seek independent legal advice before signing anything.
Guarantor Loan Requirements: What Lenders Look For
Guarantor loan requirements in Australia vary, but most lenders assess the following:
For the borrower:
- Stable income and employment history
- Clean credit history
- Ability to make full loan repayments without long-term help
For the guarantor:
- Unencumbered title and available equity in a property
- Sufficient income or assets to meet the guaranteed portion if needed
- Strong credit standing
- Close family relationship
The Application Process: Step-by-Step
Here’s how to apply for a guarantor home loan:
- Talk it through: Start with an honest conversation between borrower and guarantor about risks, expectations, and plans for removing the guarantee.
- Seek advice: Both parties should obtain financial and legal advice. This is often a lender requirement. Don’t hesitate to talk to one of our expert brokers for expert guidance.
- Apply for pre-approval: The lender reviews your financial details and the guarantor’s equity and risk profile.
- Choose a property: Once pre-approval is in place, you can search for a home that fits your price range.
- Property valuations: The lender will assess both your chosen home and the guarantor’s property to confirm values and calculate LVR.
- Formal approval and documentation: Legal paperwork is signed by both borrower and guarantor, including formal guarantees and mortgage documents.
- Settlement: Once everything is finalised, the property is settled, and your mortgage begins.
Managing Your Guarantor Loan Over Time
After settlement, it’s important to manage the loan proactively:
- Make repayments on time: This protects your credit rating and your guarantor’s peace of mind.
- Aim to build equity quickly: By making extra repayments or renovating to increase value, you can reach the 20% equity threshold faster.
- Track your LVR: Once your LVR drops below 80%, you may be able to remove the guarantor.
- Stay in touch: Keep the guarantor informed of any major changes to your financial situation.
How to Remove the Guarantor
You can release your guarantor once:
- You’ve built at least 20% equity in the property
- Your repayments are consistent and the lender is confident in your ability to manage the loan
- You pass the lender’s reassessment for a stand-alone loan
This may involve refinancing or simply restructuring the existing mortgage.
Why remove the guarantor?
Releasing the guarantor benefits both you and them. It gives you full financial independence and greater flexibility when making future loan decisions. For your guarantor, it removes their legal and financial responsibility, freeing up their equity for other purposes, like borrowing, investing, or retiring. It also helps prevent potential strain on the relationship if your situation changes later on.
Alternatives to Guarantor Loans
If you’re not comfortable with the guarantor model, consider these alternatives:
- Low-deposit loans with LMI: Buy with a 5–10% deposit, but factor in the cost of LMI.
- Genuine financial gifts: A relative may choose to gift you a deposit outright (no guarantee involved).
- Shared equity schemes: Some state programs offer co-ownership models, such as Queensland’s Help to Buy Scheme, for low-to-middle income earners.
- Joint home loans: Purchase with a partner or family member who shares ownership and repayment responsibilities.
Each of these alternatives comes with its own set of benefits and potential downsides. It’s worth comparing all possibilities with an expert mortgage broker like ours before deciding.
Final Thoughts
A guarantor home loan is a powerful tool for Australians looking to break into the property market sooner. It can eliminate the need for a large deposit, reduce your LVR, and help you avoid paying Lenders Mortgage Insurance, but it’s not without risk. For both borrower and guarantor, it’s important to understand the obligations, plan ahead, and regularly review the arrangement to ensure it remains sustainable.
At Unlocked Finance, we guide both borrowers and guarantors through the process from start to finish. Our experienced Toowoomba mortgage brokers understand the ins and outs of guarantor loans and will help you find the right lender and structure the loan to suit your situation. We’ll also make sure you and your guarantor receive the guidance and clarity you need to make confident, well-informed decisions.
Get in touch with our Toowoomba office today to explore whether a guarantor home loan is the right move for your path to property ownership.
