29 Oct 2026 * 7-9 minute read

Securing a home loan can be challenging, particularly if you're struggling to save a big enough deposit. This is particularly the case if it’s your first property purchase.

One option worth considering is a guarantor home loan, where someone such as a family member agrees to guarantee part of your mortgage. Having a guarantor may make it possible to buy a home sooner by reducing the size of deposit you’ll need. Plus, it could help you avoid paying for lenders mortgage insurance (LMI).

That said, becoming a home loan guarantor is a big financial commitment that carries risks for both you as the borrower, and the guarantor. Therefore, it’s important to understand how guarantor mortgages work, who can be a guarantor, and what the potential impacts are if the borrower fails to make repayments and defaults on the loan.

According to a recent Westpac Home Ownership Report^[#], 28.4% of survey respondents expect to give or receive financial support from family to buy a property within the next two years.

This guide runs through the key features, potential benefits and risks of guarantor home loans in Australia, to help you make an informed decision.

Questions answered:

• What is a guarantor home loan?
• How does having a home loan guarantor work?
• Who can be a home loan guarantor?
• What's an example of a home loan with a guarantor?
• What are the potential benefits of guarantor support for borrowers?
• What are the risks for guarantors?

Key take outs

• A home loan guarantor provides security for part of a borrower's mortgage.
• Guarantor home loans may help eligible borrowers get into the market sooner with a smaller deposit, while potentially avoiding LMI.
• Guarantors are financially responsible if the borrower cannot meet their loan repayments.
• Both borrowers and guarantors should seek independent legal and financial advice before signing a guarantee.

What is a guarantor home loan?

When you take out a guarantor home loan, another person – usually a close family member – agrees to guarantee part of your mortgage. Instead of providing cash to supplement your deposit, the guarantor generally offers equity in their own property or the funds in a term deposit as additional security.

These arrangements are often called family guarantee home loans because parents are the most common guarantors. However, other eligible relatives may also qualify depending on the requirements of the lender.

Rather than guaranteeing the entire mortgage, your guarantor typically agrees to secure the portion of your loan above 80% of the property's value. This can allow you to buy with a smaller deposit while reducing the risk to the lender.

How does having a home loan guarantor work?

The first steps in securing a guarantor home loan are to establish how much you have for a deposit, how much you can afford in repayments, how much your guarantor is prepared to provide as equity, and how this affects your purchase budget. Equipped with this information, you can apply for a mortgage.

• Your lender works with you and your guarantor to make sure both parties understand the procedure, the risks involved, and that each can fulfil their obligations.
• The lender then arranges to take a limited guarantee over your guarantor's property.
• The figure guaranteed is usually enough to achieve a 20% deposit once combined with your contribution.
• Your loan might be split into two parts, separating your portion from the loan secured by your guarantor’s property.
• If you default on your loan and have to sell, and the property's sale doesn't cover the outstanding debt, your lender may seek repayment from the guarantor up to the guaranteed amount.

This is called a limited guarantee rather than unlimited guarantee, as it may cover only enough of the loan to reduce the lender's exposure to 80% of the property's value.

Once you’ve built enough equity in your property through loan repayments and potentially, capital growth if the property’s value rises over time, you may be able to apply to have the guarantee released – although this will be subject to your lender’s policies and approval.

Who can be a home loan guarantor?

Eligibility requirements vary between lenders, but guarantors are typically close family members such as parents, grandparents, stepparents or adult siblings.

Whatever their relationship to you, your guarantor will generally need to:

• own a property, and have sufficient equity in that property to cover their guarantee,
• have a good credit record and show that they can meet their own financial commitments,
• understand the legal obligations and risks involved, and
• obtain independent legal advice before signing the guarantee documents.

What's an example of a home loan with a guarantor?

Let’s say Ruby wants to buy her first home for $1 million but has only saved a $50,000 deposit (plus enough for upfront costs such as stamp duty), which is 5%. However, her lender requires 20%, unless Ruby pays for lenders mortgage insurance(LMI) to cover the risk.

To avoid Ruby paying LMI, her parents agree to guarantee the other 15% using equity built over the years in their own home. Ruby’s lender now has additional security, meaning she can buy her home sooner than if she’d had to keep building a bigger deposit.

After several years of repayments, some extra payments from bonuses, and an increase in the property's value, Ruby's loan falls below her lender's required threshold – which is 80% of the property’s value. Following a review of her financial situation and a successful application to remove the guarantee, her parents are released from their obligations.

It should be noted that currently, Ruby may also have had the option of securing government support through the First Home Owner Grant or the Australian Government 5% Deposit Scheme.

What are the potential benefits of guarantor support for borrowers?

As our example demonstrates, a guarantor mortgage can offer several potential advantages, particularly for first home buyers and younger borrowers trying to get loan approval. Potential benefits may include the following:

• You can get into the property market sooner with a smaller deposit of your own but a larger deposit overall.
• You may be able to save thousands of dollars by avoiding paying for lenders mortgage insurance.
• It could give you the borrowing capacity to buy a better property, or one in a preferred suburb.
• You’ll potentially start building equity rather than continuing to pay rent.
• Your negotiations with lenders are likely to be simpler – and more competitive home loan rates may be available.

That said, it’s important to avoid over-stretching your finances just because a guarantor has helped you increase your borrowing power. Make sure you can comfortably manage your repayments, even if interest rates rise.

What are the risks for guarantors?

A guarantor takes on significant financial commitment and legal responsibility if you default on the home loan.

If you can’t manage your repayments and have to sell in a weak property market, and you don’t receive enough money to repay your loan amount, your guarantor may be required to repay the guaranteed amount. This might put their own assets – including their home – at risk.

Other potential risks for guarantors include the following:

• Less capacity to borrow themselves while the guarantee is in place.
• They may be asked to refinance their own mortgage.
• Adverse impact on their credit score if there’s a default.
• Financial stress if their circumstances change.
• Potential impacts on family relationships.

This is why it’s so important for anyone considering becoming a guarantor to fully understand the extent and limits of the guarantee, for how long it might remain in place, and the overall risks.

Remember, you should both seek professional advice.