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Guarantor Home Loans

You can borrow between 100% and 110% of a property's value.

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Updated: 07 Nov, 2024
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Key Points

What Is A Guarantor Home Loan?

A guarantor home loan is when a family member of the homebuyer offers their own property as security for the loan.
This option allows borrowers to finance between 100% and 110% of a property’s purchase price. Typically, 80% of the loan is secured against the property value, while the remaining balance is covered by the guarantee provided by the family member’s property.

How much you can borrow using a guarantor loan depends on what type of borrower you are:
First-home buyers: 100% of the property value
Construction: 100% of the total land value and cost of construction
Refinancing: 100% of the property value
Debt consolidation and purchase: 110% of the property value.
Investors: 100% of the value of your investment property.
Note that borrowing over $1,000,000 will require you to meet additional credit requirements.
What Are The Benefits Of A Guarantor Loan?
You don’t need a deposit, allowing you to buy a home now.
Save money by not paying an LMI premium.
Discounted interest rates are available from some lenders.
You can consolidate some minor debts, such as credit cards, when you buy your home.
You can limit the size of the guarantee to minimise your family member’s exposure.
What interest rates are available?

Competitive rates available. Please contact us to find out how we can help you.

Lenders available:

Bank and non-bank lenders available. Contact us to learn more.

Discover if you qualify:

We can help you buy or refinance property anywhere in Australia.

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How Do Guarantor Loans Work?

Your guarantor will secure your home loan by offering their property as collateral, often with your parents helping you purchase your home.
The goal is to help you enter the property market sooner. After you’ve paid down part of your loan or your property has gained value, you can apply to remove the guarantee.
Guarantor loans have gained popularity in recent years. They are often more affordable than standard home loans, allowing you to purchase without a deposit. Some lenders now also offer the option to limit the size of the guarantee.

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How Is The Mortgage For The Guarantee Structured?

The loan is secured by both the property that you are buying and the property owned by the guarantor.
It is quite simple, and if you use a limited guarantee, then the guarantor can reduce their exposure to your mortgage.
The structure is very similar if your parents already have a home loan on their property. The guarantee for your loan is secured using a second mortgage behind their current loan.

How Much Is The Limit Of The Guarantee

For most guarantor loans we ask the lender to limit the guarantee secured on the guarantor’s property. This means they are not liable for the entire loan amount, only a portion of it. The size of the limited guarantee is calculated as follows:
Size of the limited guarantee = (Loan Amount – (0.8 * Purchase Price))/0.75.
For example, if you are buying a property for $500,000 and are borrowing $525,000 to cover your expenses such as stamp duty then the calculation would be:
($525,000 loan amount – (0.8 * $500,000 purchase price))/0.75 $125,000/0.75 = A limited guarantee of $166,700 (rounded to the nearest $100)
Is this all too complicated? Just let our guarantor loan calculator figure it all out for you.

What Types Of Guarantees Are There?

Security guarantee: With this type of guarantee, the guarantor uses their real estate as additional security for your loan. If the guarantor already has a loan on their property, then, in most cases, the bank can take a second mortgage as security.
This type of guarantee is most often used when first home buyers with an excellent credit history buy a home but have no deposit. The guarantor is also called an “equity guarantor” by some lenders.
Security and income guarantee: A security and income guarantor is often a parent helping their son or daughter who is a student or who has a low income to buy their first property. The lender will use the parents’ property as additional security and will rely on the parents’ income to prove that the loan is affordable.
Family guarantee / parent guarantee: This is when the guarantor is directly related to the borrowers. Banks refer to this as a “parental guarantee”. Grandparents, siblings and other family members as guarantors are considered on a case by case basis.
Limited guarantee: A limited guarantee is where only part of the loan is guaranteed by the guarantor. This is most often used with security guarantors to reduce the potential liability secured on the guarantor’s property. Guarantees can either be limited or unlimited, depending on both the guarantor’s wishes and the lender’s requirements.

FAQs About Getting A Home Loan With A Guarantor

Can I Borrow More Than 100%

Yes, you can.

While most lenders allow you to borrow 100% of the purchase price, we have some lenders on our panel that let you borrow up to 110%.

Yes, there are a few lenders who will accept guarantors for second-home buyers.

Many lenders will not allow second home buyers to apply for a guarantor loan, as they expect them to have a strong enough asset position to buy a property on their own. This is particularly unfair to people who have gone through a divorce or illness, forcing them to sell their previous home. Sunrise Finance WA knows which lenders are less conservative when assessing their guarantor loans.

Even though guarantor loans allow you to borrow 100% of the purchase price, many lenders still require you to have 5% of the price in genuine savings.This simply means money you have saved yourself. Sometimes a bank will accept a history of paying rent in place of genuine savings.
Other lenders do not have a specific policy regarding this. Instead, their credit scoring system may decline your loan based on your asset position relative to your income if you don’t have enough savings.
Lenders view people who have a high income and a low asset position as high risk. Many young people spend their money on their education, a car, a wedding or travelling and begin saving for a house only later in life. These people are not high-risk borrowers, they just have different priorities!
Talk to Sunrise Finance WA Experts to find out which lenders do not require genuine savings.
Yes, you can. There are a few lenders in Australia who will allow a guarantor for an investment property.
We can often help you buy one investment property; however, guarantor loans for buying multiple investment properties are not normally approved. This is because the guarantor takes an unnecessarily high risk, whereas the borrower makes all of the potential profit.
If the guarantor is in a strong financial position, then lenders may consider loans for multiple investment properties.

If you cannot make your home loan repayments, then lenders will always take action on your property first before making the guarantor pay out the outstanding debt.

Repossession will commence only if the mortgage has been in arrears for 90-180 days.

You do not want the guarantee to be in place for the entire term of the 30-year loan. You should apply to the bank to remove the guarantee when the following conditions have been met:
You can afford the repayments without any assistance.
Your loan is for less than 90% of the property value (ideally 80% or less).
You haven’t missed any payments in the last 6 months.

You must apply with the bank to remove the guarantee – it isn’t automatic!

Most people can remove the guarantee somewhere between 2 and 5 years after they set up the loan, although this can vary.

Many guarantees are set up because the borrower has no deposit, so removing the guarantee often depends on how much the property appreciates in value and how much in extra repayments the borrower can afford to make.

You can still remove the guarantee if you owe more than 80% of the property value, but you may have to pay LMI to achieve this.

To give you and your guarantor added protection in the event of default, you may want to consider getting life, total and permanent disability, and/or income protection insurance.

It’s not a requirement for qualifying for a guarantor loan, but it can allow you to pay out your home loan if you are hit with an unfortunate event that stops you from working.

You should seek advice from a financial adviser to ensure you choose an insurance product that suits your needs and financial situation.

That’s OK. As long as your guarantor has sufficient equity, some lenders on our panel can still secure a guarantee on their property, using a second mortgage.

Your guarantor should declare all loans secured on their property, including business or commercial property loans; otherwise approval may be withdrawn before settlement.

Do not commit to any property until:

Consent for the second mortgage has been granted.
A bank valuation has been completed on your guarantor’s property.
Your lender has issued a formal approval.

The lender that already has a home loan secured on your parents’ property needs to consent to the guarantee being secured on the property. There is a small risk that they will deny or withhold consent, which can leave you high and dry.

Let’s say that after 3 or 4 years as your guarantor, your mom and dad decide they want to pull up stumps and sell their home.

It could be that they want to downsize or live their retirement dream of travelling the world. What do you do then?

Chances are you wouldn’t have paid down your mortgage to less than 90% of the property value by then (the minimum LVR at which you’d be able to remove the guarantee with most lenders)

So before they sign the guarantor arrangement, they should be aware they may be unable to sell the property or borrow on their mortgage when they want.

Before you tell your parents to hold off on whatever financial goals or dreams they had, you have some options

If you owe more than 90% of your loan amount, are you able to come up with your own money to pay down the amount owing on the loan to get under that threshold?
The other option is that once your mum and dad sell, ask them if they can secure the guarantee with a dollar-for-dollar term deposit. For example, if the guarantee was $90,000, they would need to provide the lender with a $90,000 term deposit as security.

Most Australian banks will not accept a security guarantee from a retired or elderly guarantor.

Not every lender assesses guarantors this way. Some of our lenders can accept guarantees from people close to retirement, pensioners and self-funded retirees over 65, as long as they obtain legal advice before signing the loan offer..

Unfortunately, for a property to qualify as security for a guarantor home loan in Australia, it must be located in Australia. Banks and lenders do not accept properties outside of Australia for this purpose.

However, there are other ways your parents can assist you in your home-buying journey:

Gifted Deposit: Your parents can support you by providing a gifted deposit. This can involve them releasing equity from their New Zealand property to gift you the funds, which can be used towards your home loan deposit. With this approach, you can borrow up to 95% of your property’s value, though borrowing more than 80% necessitates paying Lenders Mortgage Insurance (LMI).
Parent Assist Home Loan: Another option is the parent-assist home loan some lenders offer. In this scenario, your parents lend you the deposit amount, which you repay with a minimal interest rate. This arrangement requires both parties to obtain independent legal and financial advice before proceeding.

For personalised advice or to explore your home loan options further, reaching out to a mortgage broker can be very beneficial. They can guide you through the available loan products and strategies to best support your home purchase, even in complex situations like having potential guarantors overseas.

Yes, while most banks traditionally prefer guarantors to be the borrower’s parents, there are lenders that accept immediate family members as guarantors. This can include siblings, grandparents, spouses, and de facto partners, provided they are over 18 years of age. It’s important to note that friends, work colleagues or associates are generally not accepted due to the banks’ preference for a guarantor to have a strong, personal relationship with the borrower.

FAQs About Being A Guarantor On A Home Loan

Who Can Be A Guarantor?

Most banks will allow only a borrower’s parents to be guarantors.

Some lenders can consider guarantees from immediate family members such as siblings, grandparents, spouses, de facto partners or adult children.

You should never feel pressured to enter into a guarantor loan.

Choosing to act as a guarantor is a big decision so it’s recommended that you seek independent financial advice. Ask yourself the following questions:

How big is the limited guarantee? Are you able to cover any outstanding costs should things go pear-shaped?
Under what condition will you be liable to pay? Generally, banks will look to take action only if the mortgage is in arrears for 90-180 days.
What is the character of the person you’re guaranteeing? This may be difficult to answer if it’s your own son or daughter, but you should be honest with yourself.

To protect guarantors, the Australian Banking Association has enforced a new Banking Code of Practice.

Guarantors must be given a minimum of three days to review their guarantee documents and consider their obligations before signing and returning the paperwork.
Guarantors will have a cooling-off period after signing the agreement.
Guarantors will be encouraged to seek independent legal advice before signing.
If a guaranteed borrower gets into financial difficulty, or their circumstances change, the bank will notify the guarantor.
The bank will attempt to retrieve assets from the borrower before starting action against the guarantor. If this is a concern, seek independent legal advice.
The guarantor is ultimately liable for a home loan should the borrower default.
People fear that banks will move quickly to sell a guarantor’s home to cover remaining debt after a default but banks try everything to solve the problem before taking this drastic step.
This is because there is often significant process and cost involved in trying to sell the guarantor’s home.
The bank knows it will struggle to break even by going down this path so it would much rather the borrower keep paying the mortgage. It will want to work out why the borrower is having trouble managing repayments and whether a solution can be found.
If you are a parent whose child is struggling to save a deposit and you want to avoid some of the risks of acting as a guarantor, a parent-assist home loan may be better suited to your situation..
What if the sale of your child’s property isn’t enough to cover the home loan?
Remember, if you have a limited guarantee in place, you are liable only up to the agreed upon amount.
This is usually about 20-35% of the purchase price, plus stamp duty, conveyancing fees and other costs.
For example, if the outstanding debt is for $700,000, but the limited guarantee is for only $210,000, the guarantors are liable for covering the outstanding mortgage only up to $210,000.
Obviously, if the property sold for $700,000 or more, they wouldn’t have to worry about anything.
If the property sells for only $440,000, however, the guarantor will have to cover up to $210,000 with equity in their property to cover the shortfall, but won’t be liable for the remaining $50,000 [($700,000 – ($450,000 + $210,000)].
Of course, if the property sold for $590,000, then the guarantor would be liable for $110,000.
Guarantors should be aware of the size of the guarantee they’re providing.

Try to make this decision before your borrower receives home loan approval and signs the Contract of Sale, otherwise the borrower may default on the contract and be sued.

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Guarantor Home Loans FAQs

Why Is There No LMI Premium?

From the bank’s point of view, if you are borrowing more than 80% of your property’s value then there is a chance that they will lose money if you can’t make your repayments. Because of this they charge you a fee known as Lenders Mortgage Insurance (LMI) to protect themselves if there is a loss.

This fee can be quite significant, costing more than $10,000.

However, with a guarantee as additional security, the bank considers your family pledge loan to be under 80% of the value of your property combined with the guarantees value. As a result of this, they waive the requirement for LMI.

If your parents already have a home loan secured on their property, then the guarantee will need to be secured by a second mortgage.

This isn’t a problem in most cases; however, it can be an issue if your application isn’t submitted to the bank correctly.
Do not commit to any property until:

Consent for the second mortgage has been granted.
A bank valuation has been completed on your guarantor’s property.
Your lender has issued a formal approval.

The lender that already has a home loan secured on your parents’ property needs to consent to the guarantee being secured on the property. There is a small risk that they will deny or withhold the consent, which can leave you high and dry.

The method of calculating the equity in your parents’ property can be very complex if they already have a loan. Please use our guarantor loan calculator or call us on 0862430351 for more information.
Very few lenders will allow you to buy a home and consolidate your credit cards or personal loans at the same time. We know which lenders will allow you to roll everything into one simple, low repayment each month.
Note that you might only be able to consolidate a max debt of $50,000 with one of our lenders.
The less obvious risk of going into a guarantor loan arrangement is you splitting up with your partner and the partner choosing not to make mortgage repayments.
This not only puts you at risk of default but can also potentially put your parents in a precarious position.
Playing with the mortgage in this way is quite common when couples get divorced. In fact, they’re often advised by their solicitor to do so!
If you can get past the legal stoush, please get in contact with us by completing our free assessment form, and we can tell you how we can help.
We’re experts at buying out ex partners and we can start the conversation with your bank as to how this will work with your parents providing a guarantee.

Every lender seems to have come up with their own name for guarantor loans!

St George: Family Pledge
Westpac: Family Security Guarantee
CBA: Home Loan Guarantor Support
AMP First Home Buyer Family Guarantee
Bankwest: Family Guarantee
Heritage Bank: Family Guarantee
NPBS: Family Guarantee Home Loan

Confused yet?

Don’t worry, they all mean nearly the same thing. Most of these terms refer to a security guarantee, as only a few select lenders allow other types of guarantees.

There are big differences between the bank’s credit guidelines, loan types and discounts for family guarantee loans.

Low doc loans cannot be used with the guarantor’s support as lenders are very conservative with their assessment of no financials home loans.
It may be possible to get around this if the guarantor takes out a loan on their property and lends this to you to use as your deposit. Although this is not an ideal situation, it can work for some borrowers.
We call this the 80/20 method as you will borrow 80% of the property value and your family member will borrow the other 20% on their property. Many lenders do not accept this financing method so please enquire online to speak to a mortgage broker that understands this loan structure.

Guaranteeing somebody elses loan is a major commitment so you should always seek advice from the appropriate professionals such as your solicitor before deciding to proceed.

We recommend that you have a preliminary discussion with your solicitor before applying for the loan and then take the ‘Guarantee & Indemnity’ documents to your solicitor for legal advice before signing them.

It also helps to seek out a specialist mortgage broker like Sunrise Finance WA because there are many aspects to consider when applying for this type of mortgage:

Getting approval: Lenders are more conservative than ever, but they are particularly conservative with guarantor loans. We know which lenders accept which types of guarantees and which lenders will accept someone in your situation.
Know the terms and conditions: Some banks have simple terms and conditions for their guarantor loans and allow you to limit the amount of the guarantee. However many lenders will not limit the guarantee which means the guarantor could be in a much worse position if you cannot make your repayments.
The exit strategy: The loan may have a term of 30 years, however you don’t need to keep the guarantee in place for that long. We can help you work out a strategy of either making extra repayments, or refinancing to remove the guarantee in as little as 2 to 5 years.
Protecting the guarantor: If you cannot pay your loan then how can you protect your guarantor from having to pay your loan and possibly losing their home? You can reduce the risk to the guarantor by obtaining insurance.

If you don’t set up your mortgage in the right way, you may be putting your parents at a higher risk, or you may not be able to remove the guarantee as quickly as you would like.

Please call our mortgage brokers on 0862430351 or enquire online to find out how we can help you.

How Can You Help Me Get Approved?

We are mortgage brokers who specialise in guarantor-supported home loans. We can quickly assess your situation, work out which lenders can approve your application and which loans would be the cheapest for your situation.

Our additional free services include reminding you when it may be possible to remove the guarantee and discussing the proposed loan with the guarantor to make sure that they understand and are comfortable with it.

To talk to a mortgage broker specialising in guarantor-supported lending please enquire online or call us on 0862430351.

Related Topics

Buy with a Smaller Deposit

With a guarantor, you can purchase a home with little or no deposit, as the guarantor provides security for part of your loan.

Avoid Paying LMI

A guarantor can help you bypass Lenders Mortgage Insurance (LMI), saving you thousands of dollars on your loan costs.

Boost Borrowing Power

By using a guarantor, you may qualify for a larger loan amount, enabling you to buy a better property or invest sooner.

Enter the Market Sooner

With the help of a guarantor, you can fast-track your property purchase, avoiding years of saving for a larger deposit.

Flexible Loan Options

Guarantor loans are available with a range of loan types, including fixed, variable, or split-rate options, allowing you to choose what suits you best.

Limit Guarantor's Risk

Many lenders allow partial guarantees, which means the guarantor only secures a portion of your loan, reducing their financial exposure.

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