What Is a Guarantor Loan?

A guarantor loan lets you buy with a smaller deposit — sometimes none at all — by having a family member back part of your loan with their own property. It's one of the fastest ways into the market for first home buyers, but it puts real obligations on the person who agrees to it.

What is a guarantor loan?

A guarantor loan is a standard home loan where someone else — usually a parent — offers equity in their own property as additional security, rather than lending you cash. The lender uses that security alongside your own deposit to reduce (or remove) the gap that would otherwise trigger lender's mortgage insurance (LMI). Most Australian lenders call this a family guarantee.

How it works

Rather than guaranteeing the entire loan, most family guarantees are a limited guarantee — the guarantor's liability is capped at a set amount, usually enough to bring your effective deposit up to 20% of the purchase price. If you borrow $600,000 with a 5% deposit, for example, the guarantee might cover the remaining 15% gap, secured against equity in the guarantor's home. You still make all the repayments; the guarantee only comes into play if you default and the property sale doesn't cover the debt.

Who can be a guarantor

Most lenders restrict guarantors to immediate family — typically parents, though some allow siblings or grandparents. The guarantor needs sufficient equity in their own property, needs to be assessed as able to service the guaranteed portion if it were called on, and must get independent legal advice before signing, which lenders require precisely because of how much is at stake for them.

The benefits for the borrower

The main appeal is speed: you can buy with a 5–10% deposit — or occasionally none — years before you'd otherwise save a full 20%, while avoiding LMI entirely on the guaranteed portion. In a rising market, buying sooner can outweigh the cost of waiting to save a larger deposit, since property growth in the meantime can easily exceed what you'd have saved.

The risks for the guarantor

This is the part that deserves the most attention. A guarantor is legally on the hook for the guaranteed amount if you can't make repayments and the property doesn't sell for enough to cover the shortfall. Their own home is the security, which means a worst-case default could put it at risk. It can also affect their own borrowing capacity for as long as the guarantee is in place, since lenders treat it as a contingent liability. No family member should agree to this without understanding exactly what they're exposed to and for how long.

Removing a guarantor from the loan

A guarantee isn't meant to be permanent. Once you've paid down the loan — or the property has grown in value — enough that your own equity covers 20% of the current value, you can apply to have the guarantee released, freeing up the guarantor's property entirely. Most people aim to refinance or request a release within 2–5 years, and it's worth checking your specific loan's release criteria with your broker from the outset.

Alternatives worth considering

A guarantor loan isn't the only way to avoid a 20% deposit. Essential workers — nurses, doctors, paramedics, police, firefighters and teachers — can often access industry LMI waivers that allow borrowing at 90–95% LVR with $0 LMI and no guarantor required, which avoids putting a family member's property at risk altogether. It's worth comparing both options before deciding which suits your situation.

Frequently asked questions