Guarantor Home Loans in Australia – How They Work and Who Should Use Them

Getting into the property market in 2025 can feel like an uphill battle, especially with property prices holding steady and the cost of living making it harder to save for a deposit. For many Australians, a guarantor home loan is the key that unlocks the door to home ownership sooner.

If you’ve heard the term before but aren’t sure how it works, this guide will break it down in simple terms, explain who it’s right for, and show you how a broker can help you use it to your advantage.

What Is a Guarantor Home Loan?

A guarantor home loan is a type of mortgage where someone (usually a family member) uses the equity in their own property as additional security for your loan.

Instead of saving the full deposit yourself, your guarantor pledges part of their property’s value to the lender, which can help you:

• Borrow up to the full purchase price of the property.
• Avoid paying Lenders Mortgage Insurance (LMI), which can save you thousands.
• Enter the market sooner rather than waiting years to save a bigger deposit.

The guarantor doesn’t hand over cash — they offer part of their property’s value as security.

How It Works

Let’s say you want to buy a $500,000 home but only have $25,000 saved. Normally, you’d need at least $50,000 for a 10% deposit and then pay LMI on top.

With a guarantor:

• They use equity from their own property (for example, $100,000).
• The lender treats this as added security, meaning your smaller deposit is no longer an issue.
• You can borrow the full purchase amount without paying LMI.

You still make the repayments, your guarantor is only responsible if you default, and the sale of the property doesn’t cover the debt.

Who Can Be a Guarantor?

In most cases, lenders will only accept:

• Parents (most common).
• Sometimes grandparents or immediate family.
• Rarely, very close non-family members, if approved by the lender.

They need to:

• Have sufficient equity in their property.
• Meet the lender’s eligibility requirements.
• Understand the risks involved, as their property is partially on the line.

Benefits of a Guarantor Home Loan

For the right borrower, the benefits can be significant:

• No LMI – This can save you anywhere from $5,000 to over $20,000, depending on your purchase price.
• Faster Entry to the Market – Avoid years of extra saving and missing out on potential growth in value.
• Borrow More – This is helpful if you’re buying in a competitive area where prices are rising.
• Flexibility – Once your property’s value grows and you’ve paid down some of the loan, the guarantor can be released from the agreement.

Risks and Considerations

While guarantor loans are a great tool, there are important things to keep in mind:

• Risk to the Guarantor – If you default and the sale of your home doesn’t cover the loan, the guarantor’s property may be used to cover the shortfall.
• Relationship Strain – Money and family can be tricky. It’s vital to be clear and transparent.
• Partial Security – In many cases, the guarantor is only securing part of the loan (the deposit portion), not the entire loan, which reduces their risk.

Both borrower and guarantor should seek independent legal advice before proceeding.

When Does a Guarantor Loan Make Sense?

This type of loan is best suited for:

• First home buyers are struggling to save a deposit but with solid income to make repayments.
• Buyers in rising markets where waiting could mean paying more later.
• Families who want to help their children build equity sooner.

It’s less ideal if:

• Your income is unstable.
• You have high levels of other debt.
• You’re purchasing in an uncertain or falling market.

How a Broker Can Help

Working with a mortgage broker like The Finance Nest ensures the guarantor home loan is structured to benefit everyone involved. We can:

• Compare lenders to find the most flexible guarantor policies.
• Structure the loan so the guarantor’s risk is minimised.
• Plan an exit strategy to release the guarantor as soon as possible.
• Handle the paperwork and lender negotiations, making the process smoother for both you and your guarantor.

Example Scenario

A first home buyer in Adelaide wants to purchase a $550,000 property. They have $30,000 saved but would normally need around $55,000 plus LMI.

Their parents agree to guarantee $100,000 using equity in their own home. The lender waives LMI, saving the buyer around $15,000 upfront. The First Home Buyers end up with an initial loan of $550,000.

Within four years, their loan has been paid down to $510k, the buyer’s property value increases to $640,000. They now have sufficient equity release the guarantor completely.

The Bottom Line

A guarantor home loan in Australia can be a game-changer for first home buyers and families looking to get a foot in the property market sooner. It can save thousands in LMI, reduce deposit requirements, and make buying possible much sooner.

However, it’s not a decision to take lightly. It requires trust, clear communication, and professional guidance to protect everyone involved.

Ready to explore your options?

Book a free, no-obligation consultation with The Finance Nest today and let’s make your property goals a reality.

📞 Call us on 08 8332 0857

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