Family Guarantor Home Loans Explained
Saving a full deposit can take years, especially with today’s property prices. A family guarantor loan is one way to speed things up, using support from a parent or close family member instead of waiting to save more. Here’s how it works and what everyone involved needs to know.
What Is a Family Guarantor Loan?
A family guarantor loan lets a parent (or sometimes another close family member) use the equity in their own home to help you buy a property, without handing over any cash. Instead of needing a full 20% deposit, you might be able to borrow with a much smaller deposit, or even none at all, because your guarantor’s property backs part of the loan.
How Does a Family Guarantee Loan Actually Work?
Let’s say you want to buy an $700,000 home but only have $35,000 saved (5% deposit). Normally, you’d need Lender’s Mortgage Insurance (LMI) or a bigger deposit. With a guarantor, your parents can offer their own home as extra security for part of the loan. This covers the gap, so you avoid LMI and can borrow the rest.
The guarantor isn’t handing over money. They’re simply putting up some of the equity in their property as a guarantee. If you keep up your repayments (which most people do), the guarantor’s involvement is often removed within a few years once you’ve paid down enough of the loan or your property has grown in value.
Who Can Be a Guarantor of a Family Guarantee Loan?
Usually a parent, but some lenders also accept grandparents or siblings.
The guarantor needs to:
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- Own their own home (or have enough equity in it)
- Or have sufficient Cash that they are willing to “Lock Up” as security against the guarantee
- Be in a stable financial position
- Get independent legal advice before signing anything
The Benefits of a Family Guarantee Loan
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- Buy sooner without waiting years to save a full deposit.
- Avoid Lender’s Mortgage Insurance, which can save tens of thousands of dollars
- Borrow the full purchase price in some cases, plus costs
- Build equity faster since you’re in the market earlier
- Parents can help without losing the cash
This last one is one of the primary reasons we highly recommend a Family Guarantee Loan as an alternative to gifting a deposit to children.
Here’s a great example of the asset protection Family Guarantee loans can offer:
Mum & Dad want to give a new couple a hand up to buy their first home. They gift the children $50,000 to “get started”. A year later the couple separate. Mum and Dad don’t get their $50,000 back. If they are lucky, they might get half that was their child’s share in the separation.
Compare that with Mum & Dad providing a Guarantee for the $50,000. The couple separates, the guarantee is extinguished, and Mum & Dad still have $50,000 they can offer to help with next time.
The Risks to Understand
This is a big decision for the guarantor, not just the buyer, so it’s important everyone goes in with eyes open.
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- If the borrower can’t make repayments, the guarantor may become responsible for that portion of the debt
- The guarantor’s own home or cash depoit is at risk if things go wrong.
- It can affect the guarantor’s ability to borrow for their own needs while the guarantee is in place
This is exactly why independent legal advice is required for guarantors before they sign, and why it’s worth having an honest family conversation about expectations and what happens if circumstances change.
How to Remove a Guarantor
The guarantee isn’t meant to be permanent. Once the loan balance drops to a safer level (usually when you owe less than 80% of the property’s value), you can apply to have the guarantor released.
This might happen through:
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- Making extra repayments
- The property increasing in value over time
- A combination of both
- Significant improvements to the property
Is a Guarantor Loan Right for You?
It’s a great option if you have reliable income and can comfortably manage repayments, but you’re stuck saving a deposit while rents and property prices keep climbing.
It’s less suitable if your income is unstable or you’re not confident about meeting repayments long-term, since this puts your guarantor’s home at risk too.
Talk It Through With an Awesome Broker
Every family’s situation is different, and guarantor loans involve extra paperwork, legal steps, and lender requirements. At Awesome Lending Solutions, we’ll sit down with you (and your guarantor, if helpful) and explain exactly how it would work for your situation, what the numbers look like, and whether it’s the right path forward.
Not all lenders offer the same guarantees, so speaking with us will also take a lot of the legwork out of trying to find the right lender for you sitauation