What is a Guarantor Loan? Can Your Parents Help You Buy a House?
Buying your first home can feel like an impossible dream, especially with the challenge of saving for a deposit and meeting strict lending criteria. For many, the “Bank of Mum and Dad” becomes a crucial source of support. But what if your parents can’t give you a lump sum? This is where a guarantor loan comes in.
Getting into the property market can feel impossible—especially when house prices keep rising faster than you can save. But if your parents are willing to help, a guarantor loan might be your key to home ownership.
In this article, we’ll break down what a guarantor loan is, how it works, and how your parents (or close family) can help you buy a house—even without handing over cash.
💡 What Is a Guarantor Loan?
A guarantor loan is a type of home loan where a third party—usually a parent or close family member—agrees to guarantee part of the loan by offering their own property as additional security. In simple terms, they promise to cover the repayments if you default, acting as a safety net for the lender.
This guarantee significantly reduces the lender’s risk and allows you to:
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Borrow more—sometimes even up to 100% of the property value.
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Avoid Lenders Mortgage Insurance (LMI)—saving you thousands.
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Enter the property market sooner, even if your deposit is small or your income or credit history isn’t strong enough on its own.
Instead of giving you cash, your guarantor uses their home equity to help you get approved. It’s a popular option for first-home buyers struggling to meet the usual 20% deposit requirement.
🧱 How Does a Guarantor Loan Work?
Let’s say you’re buying a house for $600,000 but only have $30,000 saved (5% deposit). A lender usually wants a 20% deposit to avoid LMI—$120,000 in this case.
With a guarantor loan, your parent can offer part of their home equity (say $90,000) as security for the shortfall. This brings your total security up to 20%, even though you didn’t have the full deposit in cash.
You still make the loan repayments. Your guarantor doesn’t pay anything unless you default.
👨👩👧👦 Can Your Parents Be Your Guarantor?
Yes—your parents can absolutely be your guarantor, and they are the most common choice for this role. Lenders typically require the guarantor to be an immediate family member, such as a parent, grandparent, or sometimes a sibling.
To qualify, guarantors generally must:
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Be an Australian citizen or permanent resident.
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Own property with sufficient equity.
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Have a good credit history and stable financial standing.
Many lenders prefer guarantors who are still working or have strong retirement savings. Your parents’ financial position and stability often play a major role in the lender’s approval decision.
While every lender has slightly different rules, one thing is consistent: your parents’ willingness to back you—paired with their financial strength—can make all the difference in helping you secure a home loan.
⚖️ Benefits and Risks: What You Need to Know
A guarantor loan can be a powerful stepping stone into the property market—but it’s important for both the borrower and the guarantor to understand what’s involved before proceeding.
🔑 For the Borrower
Benefits:
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Enter the market sooner without needing a 20% deposit.
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Avoid Lenders Mortgage Insurance (LMI)—saving potentially thousands.
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Boost your borrowing power and access more competitive home loan rates.
Risks:
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You’re still fully responsible for making all repayments.
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If you default, your guarantor becomes liable for the guaranteed portion.
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Financial pressure could strain your relationship with your guarantor, especially if things go wrong.
👥 For the Guarantor
Benefits:
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Help a loved one achieve homeownership without providing cash.
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Your support could help the borrower secure better loan terms.
Risks:
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If the borrower defaults and the lender can’t recover the loan from the property sale, your own property—or the equity you’ve guaranteed—could be at risk.
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The guaranteed amount counts as a liability, which may reduce your ability to borrow for your own needs.
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You may face stress or legal complications if financial issues arise.
That’s why most lenders require:
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Independent legal and financial advice before finalising a guarantee.
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Limited guarantees (e.g., only securing 20% of the loan) to reduce the guarantor’s exposure.
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The guarantee can typically be released later, once the borrower has built sufficient equity in their home (usually when the loan-to-value ratio falls below 80%).
⚠️ Things to Consider
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Your guarantor is putting their property on the line—communication and trust are key.
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Not all banks offer guarantor loans—an experienced broker can help you compare options.
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The borrower must still meet standard income and credit checks.
🏡 Final Thoughts: Can Your Parents Help You Buy a House?
Absolutely—a guarantor loan can make home ownership a reality for many first-home buyers. If your parents are open to the idea and understand the risks, it can be a smart way to avoid rent traps and LMI costs.
Just make sure everyone gets independent legal and financial advice, and explore all your options with a trusted mortgage broker.
🔍 Want to know if you qualify for a guarantor loan?
Get in touch with our team at Onvested Finance for a free, no-obligation chat. We’ll help you (and your parents) understand the process and find the best lender for your situation.
