Explore how guarantor home loans work, their benefits, risks, and tips for borrowers and guarantors to make informed property decisions.
Check to see if you are eligible for a home loan
Thinking of buying your first home but struggling to save for a deposit? Guarantor home loans let you borrow up to 105% of the property’s value, avoid Lenders Mortgage Insurance, and step onto the property ladder sooner. In this guide, we’ll cover the application process, compare guarantor loans with standard loans, and explain both borrower and guarantor risks so you can make informed decisions
Want to see the numbers first? Jump to our guarantor home loan calculator.
Before we dive into the details of guarantor home loans, let’s dive into a real-life success story.
Zhara, a first-time home buyer from Brisbane, was facing a common challenge. Like many young Australians, she was finding it tough to save for a deposit while also paying rent.
Despite her eagerness to step onto the property ladder, the escalating property prices in her city seemed to push her dream further away.
Then, Zhara discovered guarantor home loans. With her parents acting as guarantors, she was able to secure a loan for 105% of the property value. This opened the door to homeownership for her, without the need for a large deposit.
The advantages for Zhara were instant and significant:
– No More Rent: She could stop paying rent and start investing in her own property.
– Beating the Market: She managed to buy her apartment before prices escalated further.
– Saving on Insurance: She saved thousands of dollars by avoiding Lenders Mortgage Insurance.
Zhara’s story is a shining example of how a guarantor home loan can make homeownership accessible and affordable for first-time buyers. Now, let’s delve into the specifics of who can be a guarantor and how it works.
When considering a guarantor home loan, it’s important to understand who can act as a guarantor and what the requirements are.
Typically, a guarantor is a close family member, such as a parent or sibling. Here are some key requirements:
– Immediate Family: The guarantor usually needs to be an immediate family member.
– Property Ownership: The guarantor should own property in Australia.
– Sufficient Equity: The guarantor must have enough equity in their home.
– Employment Status: The guarantor should be currently working.
While many people can act as a guarantor, there are some exceptions:
– Friends or Distant Relatives: These individuals typically can’t act as guarantors.
– Retirees: Unless they have a solid source of income, retirees may not be accepted as guarantors.
Even with a guarantor, some lenders may require you to show that you have been saving money, usually at least 5% of the purchase price.
This is known as genuine savings demonstrates to the lender that you can manage your finances and make regular loan repayments.
Understanding these requirements can help you determine if a guarantor home loan is the right choice for you. If you’d like to know more, contact us for a free assessment.
One of the key advantages of a guarantor home loan is the potential to increase your borrowing power.
But what does this mean, and how does it work? Let’s break it down.
Borrowing power refers to the maximum amount that a lender is willing to loan you.
It’s calculated based on several factors, including your income, expenses, existing debts, and the number of dependents you have.
Broadly speaking, the banks will lend between 5 to 6 times your income. So if you are earning $50,000 you might be able to borrow up to $300,000.
For a more specific example, we have shown how much a single person could borrow if they were earning $75,000 per year and had no credit cards, AfterPay or personal loans.
To find out what your borrowing power is, get in touch with our team or call on 1300 088 065 and we can let you know.
A guarantor can significantly boost your borrowing power in the following ways:
– Larger Loan Amounts: With a guarantor, you can potentially borrow up to 105% of the property’s value. This can give you more options when house hunting and cover additional costs like stamp duty and conveyancing fees.
– Avoiding LMI: Lenders Mortgage Insurance (LMI) is typically required when you borrow more than 80% of the property’s value. However, with a guarantor, you can avoid this cost, which can add up to thousands of dollars.
– Better Interest Rates: Some lenders offer discounted interest rates for loans with a guarantor, which can save you a significant amount over the life of your loan.
Check to see if you are eligible for a home loan
To understand how much you can borrow with a guarantor home loan, you can use a guarantor loan calculator. This tool takes into account your income, expenses, and the value of the guarantor’s property to give you an estimate of your borrowing power.
In the next section, we’ll delve into the responsibilities and potential risks of becoming a guarantor. It’s important to understand these aspects before entering into a guarantor home loan agreement.
Applying for a guarantor home loan can feel overwhelming. But with the right steps, it’s straightforward. Here’s a clear guide to help you through the process.
Before applying, both the borrower and guarantor must meet lender requirements:
Guarantor: immediate family, property ownership in Australia, enough equity, and employed. The guarantor provides security, so their financial position must be strong.
Not all lenders offer the same guarantor home loan options. Compare:
Maximum borrowing power: Different lenders may allow higher loan amounts with a guarantor.
LMI exemptions: Some lenders waive Lenders Mortgage Insurance, saving you thousands.
Interest rates and fees: Even small differences can affect long-term repayments significantly.
Lenders require proof to approve your loan:
Income statements and payslips: This confirms your ability to meet monthly repayments.
Evidence of savings or genuine savings: Lenders want to see you manage your finances responsibly.
Guarantor’s property ownership and equity details: The guarantor’s property must have sufficient value to cover the guarantee.
Once your documents are ready:
Fill in the loan application carefully: Errors can delay approval or cause rejections.
Include all borrower and guarantor details: Complete information allows a smoother assessment.
Prepare for lender queries or extra documentation: Lenders may request clarification or additional proof.
The lender will:
Assess your income, expenses, and debts: This determines how much you can safely borrow.
Conduct a property valuation: The property value affects the loan-to-value ratio (LVR).
Determine the loan-to-value ratio (LVR): The LVR impacts borrowing limits and the need for LMI.
After approval, settlement occurs:
Funds are released to complete your property purchase: This final step secures ownership of your new home.
Guarantor can be released once LVR falls below 80% or repayments are regular: Removing the guarantor reduces their financial liability.
Understanding the key differences helps you make the right choice. Guarantor home loans offer unique advantages over standard loans and can help first-home buyers plan their purchase wisely.
Standard Loan: Typically requires a 20% deposit. For an $800,000 home, this amounts to $160,000 upfront. Saving this can take years, especially in high-demand areas.
Guarantor Home Loan: Allows borrowing up to 105% of the property value, often eliminating the need for a deposit. For an $800,000 home, you could borrow $840,000, covering the purchase price and extra costs like stamp duty and legal fees.
Standard Loans: Borrowing capacity is limited by income and deposit. For example, a borrower earning $75,000/year might qualify for a loan around $450,000, leaving them short for an $800,000 property.
Guarantor Loans: The guarantor’s equity can boost borrowing power. With a guarantor, the same borrower could potentially borrow $840,000, giving access to the full property price and extra costs.
Standard Loan: If the loan exceeds 80% LVR, LMI is usually required. On an $800,000 home with a $720,000 loan, LMI could cost between $15,000–$20,000.
Guarantor Loans: Often avoid LMI entirely, saving thousands. Avoiding LMI frees up funds for other expenses, like furniture or renovations.
Standard Loans: As of 2025, the average variable interest rate for owner-occupier loans is approximately 6.40% p.a. On a $640,000 loan, repayments would be around $4,385 per month.
Guarantor Loans: Some lenders offer discounted rates. A rate of 5.60% p.a. [6.40% – 0.8% discount) ]on a $640,000 loan reduces repayments to about $3,950 per month, saving roughly $435/month and thousands over the loan term.
Feature | Standard Home Loan | Guarantor Home Loan |
Deposit Requirements | Usually requires a 20% deposit. Borrowers need significant savings before buying, which can take years to accumulate. | Borrow up to 105%, often no deposit needed. The guarantor’s equity allows earlier entry to the property market and faster wealth building. |
Borrowing Amounts | Limited by income and deposit. You may not afford your preferred property without a large deposit, restricting options. | Guarantor’s equity increases borrowing power. You can borrow more than your savings allow and cover extra costs like stamp duty and legal fees. |
Lenders Mortgage Insurance (LMI) | Required if loan exceeds 80% LVR. LMI protects the lender but adds thousands to costs, making entry harder for first-home buyers. | Often avoid LMI entirely. Saves thousands and frees up funds for furnishing, renovations, or moving expenses. |
Interest Rates | Standard rates apply. Monthly repayments may be higher, and long-term costs can accumulate. | Some lenders offer discounted rates. Lower rates reduce long-term repayments and can save tens of thousands over the life of the loan. |
Becoming a guarantor is a significant commitment. It’s crucial to understand the responsibilities and potential risks involved before agreeing to this role.
As a guarantor, you’re essentially providing a safety net for the lender. Here are the key responsibilities:
– Loan Repayments: If the borrower can’t make their loan repayments, you as the guarantor will be required to step in and cover the costs.
– Legal Obligations: You’ll need to sign a contract, agreeing to the terms and conditions of the guarantor home loan. It’s essential to read and understand this document before signing.
While being a guarantor can help a loved one secure a home loan, there are potential risks involved:
– Financial Risk: If the borrower defaults on their loan, you could be responsible for repaying a large amount of money.
– Credit Score Impact: If the borrower defaults and you’re unable to cover the repayments, this could negatively impact your credit score.
– Property Risk: In some cases, if the borrower defaults, the lender could potentially sell your property to recover the loan amount.
While not common, there may be some fees involved for guarantors, such as legal fees for the preparation of loan documents. It’s important to discuss this with the lender before agreeing to be a guarantor.
Becoming a guarantor is a significant decision that should not be taken lightly. It’s important to seek independent legal and financial advice before agreeing to this role. In the next section, we’ll discuss how and when a guarantor can be removed from a home loan.
Would you like to learn about your situation?
While becoming a guarantor is a significant commitment, it’s not necessarily a lifelong one. There are circumstances where a guarantor can be removed from a home loan. Here’s what you need to know.
A guarantor can typically be removed from a home loan under the following conditions:
– Increased Property Value: If the value of the property has increased, this could provide enough equity to remove the guarantor. This often depends on market conditions and the location of the property.
– Reduced Loan Amount: If the borrower has been making regular repayments and has significantly reduced the loan amount, the lender may agree to remove the guarantor.
– Improved Financial Circumstances: If the borrower’s financial circumstances have improved – for example, they’ve received a promotion or paid off other debts – the lender may agree to remove the guarantor.
The process for removing a guarantor typically involves the following steps:
– Property Valuation: The lender will need to conduct a valuation of the property to determine its current market value.
– Loan to Value Ratio (LVR) Assessment: The lender will calculate the Loan to Value Ratio (LVR) – the amount of the loan compared to the value of the property. If the LVR is 80% or less, the lender may agree to remove the guarantor.
– Borrower Assessment: The lender will assess the borrower’s financial circumstances to ensure they can manage the loan repayments without the guarantor.
Removing a guarantor from a home loan can provide a sense of relief and independence for both the borrower and the guarantor. However, it’s important to discuss this process with your lender and seek professional advice. In the next section, we’ll explore another real-life case study to illustrate the benefits of guarantor home loans.
Read More: Removing a Guarantor from a mortgage
To further illustrate the benefits of guarantor home loans, let’s explore another real-life example.
Cherise, a young professional from Sydney, had been dreaming of owning her own home. However, the high property prices in her city made it difficult for her to save for a deposit.
Upon learning about guarantor home loans, Cherise saw a glimmer of hope. Her parents agreed to act as guarantors, enabling her to secure a loan for 105% of the property value. This meant she could buy a home without a deposit.
The advantages for Cherise were substantial:
– Quick Home Ownership: With a guarantor home loan, Cherise was able to buy a property much quicker than she would have been able to otherwise.
– Saving on Insurance: By avoiding Lenders Mortgage Insurance, Cherise saved a significant amount of money.
– Extra Funds: With the ability to borrow more than the property’s value, Cherise had extra funds to furnish her new home and even take a well-deserved holiday.
Cherise’s story highlights how a guarantor home loan can not only make homeownership possible but also more enjoyable. With the extra funds, she was able to make her new house feel like a home and celebrate her achievement with a holiday.
A guarantor home loan lets a family member use their property equity as security for your mortgage. This allows borrowers to buy with little or no deposit. It can also help avoid Lenders Mortgage Insurance (LMI).
Most guarantors are immediate family members such as parents, siblings, or grandparents. Some banks allow spouses or extended family like uncles and aunts. They must own property in Australia and have sufficient equity.
Going guarantor means using your property equity to secure someone else’s loan. You don’t make repayments unless the borrower defaults. If that happens, you are legally responsible for the guaranteed portion.
You can buy sooner without saving a large deposit. It helps avoid LMI, potentially saving tens of thousands. Some lenders also offer better rates or debt consolidation options.
Guarantors must cover repayments if the borrower defaults. Their property may be used as security for the loan. Their credit rating could also be affected by missed repayments.
In many cases, you don’t need a deposit if you have a guarantor. Their equity provides the lender with security. This makes it easier to enter the property market quickly.
The guarantor’s property equity is used to reduce risk for the lender. This allows the borrower to borrow up to 105% of the property value. It can also cover costs like stamp duty and fees.
A guarantor can usually be removed once the loan is under 80% LVR. This can happen through repayments or property value growth. The lender requires a formal release process.
Guarantors are released when the borrower meets the lender’s conditions, often when LVR is below 80%. Property value increases or lump-sum repayments can speed this up. Once released, the guarantor has no further obligations.
A co-applicant is a joint borrower responsible for the entire loan. A guarantor only provides additional security. Their responsibility ends once the guarantee is released.
Yes, a spouse can act as a guarantor if they have sufficient equity. The borrower still needs to show they can service the loan. Lenders may require independent legal advice.
With a guarantor, you may borrow up to 105% of the purchase price. This covers the property and additional costs like legal fees. It increases borrowing power compared to savings alone.
Yes, but the guarantee may need to be released first. The lender might require the borrower to refinance or provide alternative security. Always check conditions with your bank.
If the guarantor sells, the guarantee must be reassessed. The borrower may need to pay down the loan or take LMI. The guarantee cannot remain once the guarantor’s property is sold.
Once released, the guarantor has no responsibility for the loan. This doesn’t require the full loan to be repaid. The timing depends on meeting lender conditions.
You can still use a guarantor loan if you don’t currently own property. Lenders generally don’t allow guarantors for wealth creation. It’s designed to help people re-enter or enter the market.
In a separation, the debt linked to the guarantor loan is divided as part of asset settlement. This ensures the guarantor’s liability doesn’t transfer to an ex-partner. However, selling the property at 100% finance may leave shortfalls due to fees.
Usually, a guarantor is a parent or close relative with property equity. Open discussion about risks is essential before they commit. Most lenders require both parties to seek legal and financial advice.
Yes, many banks offer guarantor mortgages. This helps borrowers without deposits or with lower incomes. It’s especially common for first-home buyers.
You offer part of your property as security without being on the loan. You’re only liable if the borrower defaults. This carries financial and relationship risks.
Guarantor home loans can be a powerful tool for first-time home buyers in Australia. They offer a way to enter the property market sooner, potentially borrow more than the property’s value, and save on costs like Lenders Mortgage Insurance.
At Hunter Galloway, we’re here to help you navigate the home buying process. Our team of mortgage professionals can provide you with personalised advice and guide you through the process of securing a home loan. So, don’t hesitate to reach out to us for any questions or assistance.
If you would like to speak with a mortgage broker please call on 1300 088 065 or enquire online and one of our expert mortgage brokers will give you a call to discuss your situation.
Here’s to making your dream of homeownership a reality!
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Estimate the loan amount your income may support and compare three ways to buy: your savings and any gifted funds, a limited security guarantee, or the Australian Government 5% Deposit Scheme. A standard limited security guarantee generally does not increase the loan amount your income can support — it may increase the property price you can reach by reducing the deposit and lender's mortgage insurance hurdle.
This calculator provides a rough estimate and assumes you are buying in Queensland (QLD transfer duty and scheme price caps are used — other states differ). It models a limited security guarantee only — not a guarantor who contributes income, becomes a co-borrower or guarantees the full loan. It does not assess every lender rule, scheme requirement or personal expense, and it is not a loan approval or recommendation.
This calculator provides general information and estimates only. It doesn't consider your objectives, financial situation or needs, and it isn't credit advice, a loan approval, a scheme eligibility check or a recommendation. Figures use simplified assumptions verified 17 July 2026; lender policies, tax settings, duty rates and scheme rules change without notice and are assessed case by case. Guarantors can be liable for the guaranteed amount and should obtain independent legal advice. Consider whether this information is right for you and seek advice from an accredited professional before acting. Hunter Galloway Finance Pty Ltd T/A Mortgage Broker Brisbane — Hunter Galloway, ABN 20 605 252 926. Credit Representative 476903 is authorised under Australian Credit Licence 389328.