Saving for a deposit is often the biggest hurdle to owning your own home. But what if you didn’t have to wait years to get into the market?
Saving for a deposit is often the biggest hurdle to owning your own home. But what if you didn’t have to wait years to get into the market?
Guarantor home loans are also commonly referred to as a ‘Family Pledge,’ ‘Security Guarantee,’ or ‘Family Guarantee.’ While the names differ, the core concept remains the same: using family equity to secure your future.
A guarantor loan lets a family member (usually a parent or close relative) use the equity in their own home to help secure yours. It’s a powerful way to get the keys to your first home sooner, often with little to no cash deposit required.
Here is how it helps you make it yours:
Essentially, your guarantor helps “top up” your deposit using their property equity. This means you might only need a small cash contribution (in some cases no deposit) to reach the 20% deposit threshold. By bridging this gap, you can qualify for your loan sooner and avoid the extra cost of lenders mortgage insurance (LMI).
Becoming a guarantor is a significant way to help a family member get into the market sooner. Generally, a guarantor is a family member who owns a property with sufficient equity.
It’s important to understand the commitment. As a guarantor, you are legally responsible for the portion of the loan you’ve guaranteed. If the borrower misses payments, you could be liable, and in extreme cases, the security property could be at risk. This is why we recommend all guarantors seek independent legal advice – we want both you and the borrower to feel confident and secure before moving forward.
It doesn’t have to be forever. A guarantor arrangement is a bridge, not a permanent tie. Once the borrower builds sufficient equity in their property, they can refinance to release the guarantor from the loan contract. We can also explore ‘limited guarantees’, where your liability is capped at a specific percentage.
No, you generally do not need the full 20% deposit in cash. A guarantor home loan uses your guarantor’s property equity as security to cover the deposit gap, which can significantly reduce or even eliminate the need for a large cash savings contribution.
However, many lenders will still look for a track record of ‘genuine savings’. This helps demonstrate to the lender that you have consistent savings habits and are capable of managing your mortgage repayments in the long term.
Typically, a guarantor is a close family member, most commonly a parent or legal guardian. Some lenders may consider other immediate family members (such as siblings or grandparents) under specific conditions. Guarantors must own property in Australia with sufficient equity and be in a strong financial position to support the guarantee.
Becoming a guarantor is a significant financial commitment. If you (the borrower) cannot meet your loan repayments, the guarantor is legally responsible for the guaranteed portion of the debt. This can impact the guarantor’s own credit score and, in a worst-case scenario, put their property at risk. We recommend all guarantors seek independent legal and financial advice before signing any agreement.
Yes. A guarantor is not necessarily tied to the loan for the full term. Once you have built up sufficient equity in your property, you can look to refinance and remove the guarantor from the contract.
In some cases, yes. By using a guarantor’s equity to cover the deposit gap, some lenders may allow you to borrow up to 100% of the property value (plus costs). The exact amount depends on your borrowing capacity, the guarantor’s available equity and the specific lender’s policies.
