Guarantor Home Loans Sydney
A family guarantee lets a parent use equity in their own home as extra security for part of your loan. You buy without a 20 per cent deposit and usually without lenders mortgage insurance, and they don't hand over a cent. What they do take on is a real obligation, and everyone should understand it properly before signing.
How it actually works
You borrow the full purchase price, or close to it. The loan is secured against two properties: the one you're buying, and a limited portion of your guarantor's property. Because the lender holds more security, your effective loan-to-value ratio falls below 80 per cent, which is why lenders mortgage insurance usually falls away.
The guarantee is normally limited to a specific dollar amount, typically enough to cover the shortfall between your deposit and 20 per cent, plus purchase costs. It is not a guarantee of the whole loan, and that limit should be written into the documents.
A worked example
Say you're buying at $900,000 with $45,000 saved. A 20 per cent deposit would be $180,000, so you're $135,000 short, plus costs. A guarantee of around $180,000 against a parent's property covers the gap and the buying costs.
You still owe the full loan. Your parents are not making repayments and are not gifting money. They are pledging a limited slice of their equity as backup security, which the lender can call on only if things go badly wrong. Model your own numbers.
Who a guarantor loan suits
You can comfortably service the loan but saving 20 per cent would take years while prices move.
Lenders mortgage insurance on a large loan can run to tens of thousands. A guarantee is often the cheaper route.
The government 5% Deposit Scheme has a Sydney cap of $1.5 million. Above it, a guarantee is one of the few low-deposit options left.
Common where the family home is largely paid off but savings are tied up or earmarked for retirement.
If you're not a first home buyer, the schemes generally don't apply. A guarantee does not depend on first home buyer status.
Guarantees can usually be released once your loan-to-value ratio falls far enough. It is not permanent.
What your guarantor is actually taking on
This is the part that deserves a proper conversation at the kitchen table, not a quick yes.
The risk
If you default and the lender sells your property for less than the outstanding debt, it can pursue the guaranteed amount against your guarantor's property. In a serious case that could mean they have to find the money or, at the extreme, sell. It is a genuine liability, not a formality.
Lenders generally require guarantors to obtain independent legal advice precisely so this is understood before signing. Some also require independent financial advice. That is a protection, not an obstacle.
What it does to their own borrowing
A guarantee is recorded against their property and generally shows up when they apply for credit. It can reduce their capacity to borrow, refinance or release equity while it remains in place, and it can complicate selling the guaranteed property.
If your parents are planning to downsize, renovate or help another child in the next few years, that timing needs to be part of the conversation now rather than a surprise later.
Getting the guarantee released
Most guarantees are designed to come off. The usual trigger is your loan falling to 80 per cent or less of your property's value, which happens through some combination of paying down the loan and the property's value increasing. At that point you apply to the lender to release the guarantee, generally supported by a fresh valuation.
How long that takes depends entirely on where you started and what the market does. Someone who began at 95 per cent and pays a little extra each month usually gets there faster than someone who began at the same point and does not. See what extra repayments do to the timeline.
Release is not automatic and is not guaranteed. The lender reassesses at the time, and if the valuation comes in lower than hoped, or your circumstances have changed, it may decline or ask you to wait. Some lenders also charge a fee for the valuation and the discharge of the guarantee.
Worth asking, before you sign: what exactly triggers release, what evidence is required, and what it costs. The answers differ between lenders and are much easier to get up front.
Where lender policy differs
These are the questions worth checking before you settle on a lender, because the answers are not consistent.
Most commonly parents. Some lenders accept step-parents, grandparents or siblings; some do not. Policy varies.
Some lenders apply age limits or want evidence a retired guarantor understands the obligation. Requirements differ considerably.
The guarantor's property usually does not need to be unencumbered, but there must be enough equity behind their own loan.
Some lenders will fund 100 per cent of the purchase price plus costs with a guarantee, others cap it lower.
Both properties are assessed. A guarantor property that is rural, unusual or on a large block can complicate things.
Whether a guarantee can sit alongside a government scheme depends on the scheme rules and the lender. Check before assuming.
Documents usually required
For you, the standard set: identification, payslips and often a year-to-date summary, bank statements covering savings and existing debts, and details of any credit cards, personal loans, car loans or HECS-HELP.
For your guarantor: identification, a rates notice or title search for the property being used, a statement for any existing mortgage on it, and in most cases evidence they can meet the guaranteed amount if called upon. They will also need a certificate confirming they obtained independent legal advice.
What we do
Work out whether a guarantee is genuinely the right route or whether a low-deposit loan or a government scheme would serve you better. Size the guarantee so your parents are exposed to the smallest amount that does the job. Match you to a lender whose guarantor policy fits your family's actual circumstances, including who the guarantor is and what their property looks like.
Then explain it, in plain terms, to the people signing. Compare a guarantee against the other low-deposit routes.
Work through the numbers
Guarantor calculator
How much family equity a guarantee would need to cover, and when it could be released.
OpenLVR and insurance cost
What lenders mortgage insurance would cost instead, so you can compare.
OpenHome equity
Usable equity in your guarantor's property.
OpenBorrowing power
A guarantee helps with deposit, not serviceability. This is the other half.
OpenExtra repayments
How paying a little more brings the release date forward.
OpenCan I afford this property?
Deposit, duty, costs and repayments on a specific price.
OpenGet your free First Home Buyer Report
Answer a few questions and get a written report covering your deposit position, whether a guarantee is likely to be needed, what it would have to cover and what to do next. Free, no credit check.
Common questions about guarantor home loans
Do my parents have to give me money?
No. A guarantee uses equity in their property as additional security for part of your loan. No money changes hands, and they are not responsible for your repayments. Their exposure is the guaranteed amount, and only if the loan defaults and the sale of your property does not clear the debt. If they would rather give you cash instead, that is a gifted deposit, which works quite differently.
How much equity does a guarantor need?
Enough to cover the guaranteed amount while keeping their own borrowing within the lender's limits, generally 80 per cent of their property's value including any existing mortgage. Their property does not need to be paid off. A rough guide is that the guarantee needs to cover the gap between your deposit and 20 per cent of your purchase price, plus buying costs. The guarantor calculator gives you a figure for your situation.
Can the guarantee be removed later?
Usually, once your loan falls to around 80 per cent or less of your property's value. You apply to the lender, which normally requires a fresh valuation and reassesses at that point. It is not automatic and it is not guaranteed; a lower-than-expected valuation or a change in your circumstances can delay it. Ask the lender before you sign exactly what triggers release and what it costs.
Can someone other than a parent be my guarantor?
Sometimes. Parents are the standard case and are accepted by most lenders that offer guarantor loans. Some lenders will consider step-parents, grandparents or siblings, and a smaller number consider other relatives. Policy varies significantly and this is one of the clearest reasons to compare lenders rather than approach one. Friends are almost never accepted.
Does a guarantee help if I can't afford the repayments?
No, and this is the most important limit to understand. A guarantee solves a deposit problem, not an income problem. You still have to demonstrate you can service the whole loan on your own income at the lender's assessment rate. If serviceability is the constraint, a guarantee will not fix it, and no responsible lender or broker should suggest otherwise.
Will my parents need their own legal advice?
Almost certainly. Lenders generally require guarantors to get independent legal advice from a solicitor who is not acting for you, and to provide a signed certificate confirming it. Some lenders also require independent financial advice. It exists to make sure the guarantor understands what they are agreeing to, and it is worth treating as genuinely useful rather than as paperwork.
Can I use a guarantee and a government scheme together?
It depends on the scheme rules and the lender, and they generally address the same problem, so combining them is often unnecessary. The Australian Government 5% Deposit Scheme already removes lenders mortgage insurance for eligible first home buyers up to the Sydney price cap of $1.5 million. Above that cap, or where you do not qualify, a guarantee becomes the more relevant option. Worth checking your specific position rather than assuming either way.
What happens if I want to sell?
The loan is repaid from the sale proceeds and the guarantee is discharged at settlement, provided the sale clears the debt. If the sale does not clear the debt, the shortfall is where the guarantee can be called on. Selling in a falling market shortly after buying with a very small deposit is the scenario that carries the most risk for a guarantor, which is worth being clear-eyed about at the start.
Related reading
Low deposit home loans
The four routes in with less than 20 per cent, compared honestly.
OpenGifted deposit home loans
If your family would rather give cash than pledge equity.
OpenFirst home buyers
Deposits, schemes, borrowing power and the path to keys.
OpenHome loan pre-approval
What it covers, what it doesn't, and when to get it.
OpenBring your parents to the call.
A guarantee works best when everyone understands it before anyone signs. Twenty minutes covers the amount, the risk, and how it comes off.