Buying a House With a Guarantor: How It Works in Australia

You have been saving for years, watching prices climb faster than your deposit, and the gap will not seem to close. For a lot of first home buyers, that deposit is the only thing standing between renting and owning. A guarantor can be the way through, and it usually means asking a parent to back your loan with their own home. That’s a generous thing to offer and a serious thing to accept, so it deserves a careful, honest look before anyone signs.

Key takeaways

What is a Guarantor Home Loan?

A guarantor home loan is a loan where a family member offers equity in their property as extra security, on top of the home you’re buying. But what is a guarantor? A guarantor is someone, usually a parent, who agrees to be partly responsible for your loan by backing it with their own property. Lenders accept this because the added security lowers their risk, so they may approve a loan with a small deposit or none at all, and waive lenders mortgage insurance. The difference from a standard home loan is that the lender holds a second property as backup, not only the one you’re buying. 

How does a guarantor work?

The guarantor pledges a portion of their home equity to cover the gap between your deposit and what the lender needs as security. They don’t hand over cash, and they don’t make your repayments.

You take out the loan and make the repayments, while the guarantee sits in the background as a safety net for the lender.

If you stop meeting repayments and the loan falls into default, the lender can call on the guarantee, which makes the guarantor liable for the guaranteed portion.  

A worked example

Scenario: You’re buying a $700,000 home and have saved $35,000, around 5%. Without help, you would need to find another $105,000 to reach a 20% deposit, or pay lenders mortgage insurance, which on a loan this size can run to roughly $25,000 to $30,000.  

With a guarantor putting up about $105,000 of equity from their own home, you can borrow the full amount, skip lenders mortgage insurance, and keep that $25,000 to $30,000. That saving alone often covers stamp duty. 

Who can be a Guarantor on a home loan?

What lenders look for in a guarantor

Lenders in Australia typically want a guarantor who:

• Owns property with enough equity to cover the guaranteed portion, often around 20% of your purchase price 
• Has a good credit history and stable income 
• Is an Australian citizen or permanent resident 
• Understands the commitment, usually confirmed through independent legal advice. 

How much does a guarantor need to earn?

There’s no fixed income threshold for a guarantor. Lenders care less about a specific salary and more about whether the guarantor could realistically cover the guaranteed portion if they were ever called on.

A retired parent with a paid-off home and a modest income can often qualify, because the equity does the heavy lifting. A broker can tell you what each lender will accept, since the rules vary. 

How to talk to your parents about going Guarantor

This is an emotional conversation as much as a financial one, and the relationship matters more than any property. When your parents feel respected and well informed, they are far more likely to feel confident saying yes. 

To ensure the best outcome, do your homework before you ask. Work out your borrowing capacity, bring a clear repayment plan, and be honest about how long you realistically need them on the loan. Walk them through the risks in plain terms: what they’re backing, what happens if you fall behind, and how the guarantee could affect their own borrowing while it stands.  

The goal is to help them make an informed choice, not to talk them into anything. Give them room to say no, and offer to sit down together with a broker or financial adviser so the answers come from someone independent.  

Do you still need a deposit with a Guarantor?

There are two separate things at play, and it helps to keep them apart.  

The guarantor covers the lender security, the amount the bank wants to protect its loan.

The exchange deposit is different: it’s the portion (often around 10%) that you pay to the seller when contracts are exchanged, well before settlement.

A guarantee doesn’t cover that. If your savings are tied up, a deposit bond can stand in for the cash exchange deposit while your guarantor covers the lender security.

The two tools work neatly together: the guarantee handles the bank, and the deposit bond handles the exchange. 

How much can you borrow with a Guarantor?

With a guarantor, some lenders will let you borrow up to 100% of the property value, and a few will go slightly beyond to help cover costs like stamp duty.

Serviceability still applies, so you need to show you can comfortably manage the repayments on your income, and some lenders still want to see around 5% in genuine savings. A deposit bond removes the deposit hurdle, not the need to prove you can afford the loan. 

What are the risks for the Guarantor and borrower?

A guarantor arrangement is generous, and it carries real risk on both sides. Naming it honestly upfront protects everyone.

Risks for the borrower

Borrowing more – sometimes the full price – means a larger loan and more interest paid over its life. There’s also relationship risk. If you miss repayments, the strain lands on the person who backed you, and that can sit heavily on a family. 

Risks for the guarantor

If you default, the guarantor is liable for the guaranteed portion, and in a worst case, the lender can pursue their property to recover it. The guarantee also reduces their own borrowing capacity while it stands, which can hold up their plans. Money between family can test even close relationships, so going in clear-eyed matters for both of you. 

Can you sell your house if you are a Guarantor?

Yes, in most cases a guarantor can still sell their home. Because the guarantee is tied to their property, selling usually triggers a release or a substitution, where the lender either lifts the guarantee or moves it to another asset.

How straightforward that is depends on how far your loan has reduced and how the guarantor’s property has grown. Typically your Loan to Value Ratio needs to be at least 20% value. A guarantor planning to sell should speak to both the lender and a legal adviser before listing. 

Tips for borrowers and guarantors

Is a Guarantor the right move for your first home?

Whether a guarantor is the right move comes down to your situation. If you can service a loan now and the deposit is the only thing holding you back, a guarantor can get you in years sooner and save you lenders mortgage insurance. If your income is already stretched, waiting to save more or using the First Home Guarantee where the government backs part of your loan may suit you better. It helps to compare the real cost of each path, including how long you would wait and what you would pay. 

Whether a guarantor is the right move comes down to your situation. If you can service a loan now and the deposit is the only thing holding you back, a guarantor can get you in years sooner and save you lenders mortgage insurance. If your income is already stretched, waiting to save more or using the First Home Guarantee where the government backs part of your loan may suit you better. It helps to compare the real cost of each path, including how long you would wait and what you would pay. 

No Guarantor? Other ways to Get Into the Market

This article is general information only and not financial advice. Speak to a licensed mortgage broker or financial adviser before making decisions.