02 October 2025
Fact Checked

Guarantor Home Loans

Adding a guarantor like a parent or grandparent to your home loan can boost your chances of approval if you need a helping hand securing your mortgage.

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Guarantor Home Loans

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1

Fill out our home loan form

Tell us about yourself and how much you want to borrow.

2

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3

Have your application prepped

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With housing prices still comfortably outpacing wage growth, it’s never been harder to get on the property ladder. That’s why there are solutions available to help you secure your home loan, one of which is taking out a home loan with a guarantor.

Guarantor home loans have surged in popularity in Australia, with the latest data from mortgage broker Aussie showing a 71% increase in guarantor loan settlements between the 2015-16 and 2020-21 financial years. Although a decent chunk of that came off the back of the COVID-19 pandemic, it speaks to the difficulties buyers face in the current market.

How do guarantor home loans work?

A guarantor home loan involves a parent, grandparent or close family member guaranteeing the repayment of the applicant’s mortgage. Guarantors add an extra layer of protection to the arrangement by agreeing to repay the loan should the applicant become unable to do so. This is done using equity in the guarantor’s property to guarantee up to 20% of the property’s value, meaning there are two properties securing the loan.

This opens doors for first-time buyers who may not be able to take out the loan they’re after on their own. While they’re most common for those buying their first home, anyone can have a guarantor, whether you’re looking to upgrade your current home for your growing family, are self-employed or simply don’t have enough for a 20% deposit and want to avoid paying lenders mortgage insurance (LMI).

LMI is charged on home loans with a sub-20% deposit and often costs the borrower thousands of dollars or more. Adding a guarantor means you may be able to pay as little as 5% upfront without the need to fork out for LMI. You may even be approved for a 100% loan with no deposit if your profiles are the right fit.

However, it’s worth noting that if you default on the loan, your guarantor will become responsible for repaying their guaranteed sum or even the full loan. If this is your parent or grandparent, that could put significant strain on your relationship. These are the things you and your guarantor will need to weigh up before you both sign on the dotted line.

When do you need a guarantor home loan?

There are three common situations where you may need a guarantor when you apply for a home loan:

  1. You have a low (or no) home loan deposit: as mentioned, guarantors can help you get approved with a small deposit. The average price of residential dwellings in Australia was $1,016,700 as of the June Quarter of 2025, meaning a 20% deposit would be $203,340. A guarantor could help you secure approval with 5% ($50,835 in this case) or less.
  2. You have a poor credit score: having past issues on your credit file will count against you in the application process. Things like late payments and defaults could lead to outright rejection in some cases. However, with the backing of a guarantor with a strong financial profile and credit history, your chances of approval will increase.
  3. You have no credit score: although it’s unlikely you won’t have a credit score if you’re living out of home, given that you’ll be paying utilities, phone and other bills, young buyers straight out of home may not have anything at the time of their application. Guarantors give lenders more confidence, even though they may not know what to expect from the borrower.

Who can be a guarantor on a home loan?

As mentioned, guarantors need to be someone who you trust and who trusts you. Lenders won’t accept any old person as a guarantor, as they need to be able to put faith in both of you to pay off your loan. The list of people who can be home loan guarantors includes:

  • Parents
  • Grandparents
  • Siblings
  • Children

On top of the requirement for the guarantor to be a close relative, there are other criteria that they’ll need to meet related to their profile. These can vary between lenders but may include:

  • Must be between the ages of 18 and 65 and hold Australian citizenship or permanent residency
  • Must own a property and have sufficient equity to guarantee the applicant’s loan
  • Must be earning enough to meet the lender’s minimum income requirements
  • Must have a strong credit score and history

Can I have more than one guarantor?

Yes, a home loan could have multiple guarantors agreeing to guarantee part of the mortgage. This means you could have both of your parents guaranteeing the loan with their shared property, rather than just one of them. Having two or more guarantors means the guarantee is provided jointly and severally, meaning each guarantor is potentially liable for the full guaranteed amount in the event of a default.

Do guarantor home loans cost more?

No, guarantor home loans don’t automatically cost more. Compared to a low deposit home loan without a guarantor, you’re likely to save money, as you won’t need to pay LMI. Interest rates are usually no different on these loans, either.

The main point to consider is that larger loans attract more interest overall. For example, buying a $500,000 property with a 10% deposit means you’ll pay $2,555 per month and $469,818 in total interest on a 30-year loan at 5.50% p.a., compared to $2,697 and $495,919 with a 5% deposit. That means reducing your deposit below 5% with a guarantor will cost you more in interest over the life of your loan.

If you’re buying a $500,000 property with a 10% deposit and no guarantor, you might expect to pay around $8,190 in LMI as a first-time buyer. This could increase to approximately $19,285 with a 5% deposit. Factors like your state or territory, whether you’ve bought before and your LVR will impact the cost of LMI.

How long does a guarantor stay on a mortgage?

A guarantor can stay on your mortgage as long as you and they like. However, you can usually release them from your agreement when you’ve built enough equity in your property to cover the portion they were securing with their own equity. In most cases, this is at 80% LVR or less. You can remove a guarantor by refinancing your home loan without them, therefore discharging their responsibility.

Another reason why a guarantor may need to stay on a mortgage for longer is so that you can improve your credit score. If you took out your loan with some recent black marks on your credit file, it may take another five years before they can disappear. In that time, you can continue to build positive credit behaviour until your score is sufficient to get a loan without a guarantor.

Case study: Removing your guarantor from your home loan

Jasmine bought her home at 27 and only had enough money to put down a 5% deposit, so she enlisted the help of her parents as guarantors. This meant she avoided having to pay LMI. However, her parents and 15% of the equity in their property remain on the hook if things go south with Jasmine’s loan.

Five years later, Jasmine has now built more than 20% equity in her home, between the repayments she’s made and capital growth. Because of this, she decides that now is the right time to refinance and remove her parents from the mortgage. They’re no longer required to help Jasmine get her home loan on her own, so she releases them from the agreement.

Why apply for a home loan with Savvy

Help throughout the process

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With a panel of reputable mortgage lenders, you can rest assured you'll be comparing high-quality options with your broker.

Paperless quote process

You can fill out a simple online quote via our form without having to worry about sorting through heaps of paperwork.

Pros and cons of guarantor home loans

Pros

  • Can make home loan approval possible

    You might be in a position where approval isn’t possible for your situation. Adding a guarantor could open that crucial door to property ownership for you.

  • Can help you borrow up to 100% of your home’s purchase price

    With the backing of your guarantor, you could potentially purchase your house without having to pay any money towards your deposit.

  • No LMI payable for guarantees up to 20% of your loan

    If your guarantor makes up the difference between your deposit and the 20% threshold, you can have LMI waived on your loan.

Cons

  • Guarantor becomes liable if you fail to pay off your loan

    Defaulting on the loan means that your guarantor could be left significantly out of pocket, as your lender will look to recoup its funds.

  • Impacts your guarantor’s ability to take out a loan or sell their home

    Guarantors will be limited in what they can do with the property they’re using as equity. It can also impact their borrowing power or eligibility for other loans.

  • May impact your relationship

    Given that your guarantor will be a close family member, such a big financial decision could affect the dynamic, especially if you struggle to cover your loan.

How to apply for a home loan with a guarantor through Savvy

  1. Apply online

    Tell us about yourself and your current situation in our quick quote form.

  2. Chat about your options and guarantor

    One of our brokers will give you a call to talk about your loan, as well as discuss your guarantor.

  3. Provide all your documents

    Send all the documentation your broker asks for, including anything from your guarantor.

  4. Get pre-approved

    Once we have what we need, your broker can get pre-approval for you.

  5. Lock in the home you want

    When you find the place for you, secure the purchase and let your broker know.

  6. Application prepared and approved

    We’ll prepare your formal application and submit it for approval.

  7. Have your loan settled

    Settlement will take a few weeks, but once it’s done, the property is yours!

Top tips to consider before entering a guarantor home loan

  • Get independent legal and financial advice

    A guarantor home loan is a big commitment for both the borrower and guarantor. Both parties should get independent legal and financial advice to ensure they each understand the implications of their arrangement. This should also determine whether it’s appropriate for their respective financial circumstances.

  • Have an open and honest conversation before you enter into the arrangement

    Guarantor arrangements can ruin family relationships if the guarantor is left in the lurch and out of pocket for their guarantee or more. It’s important to discuss what could happen in the worst-case scenario before a home loan agreement is put in place with both of your names on it.

  • Work out an exit strategy with the lender

    Make sure that there is a documented exit strategy for when the guarantor arrangement will end. For example, this may occur when the LVR is below 80% or when the borrower’s credit score improves and they can “stand on their own two feet”. At that point, you should be able to refinance and remove them.

What are some alternatives to using a guarantor on my home loan?

While a guarantor can be helpful for securing a home loan, it might not be the only option available to you. The main alternative is the expanded First Home Guarantee scheme, which the Australian Government announced would come into effect on 1 October 2025.

Under this scheme, first-time buyers can take out a mortgage on an eligible property with a deposit as small as 5% and not have to pay LMI. This effectively removes the need for a guarantor if you only want one to avoid forking out for LMI.

It's worth noting that new and existing properties purchased under this scheme must fit the set property price caps for each state, territory and region. For example, as of 1 October 2025, the cap for homes in Sydney, Illawarra, Lake Macquarie and Newcastle is $1.5 million, while all properties outside these areas in New South Wales will be capped at $800,000.

Some of the other options outside of applying with a guarantor include:

  • Low deposit loan with no guarantor: if you can qualify for your loan with a small deposit and with no guarantor, that’s always still an option. Just be mindful of the cost of LMI and the potentially increased rate if your profile isn’t as strong.
  • First Home Owner Grant (FHOG): each state and territory has one of these except the ACT. This could give you access to between $10,000 and $50,000 to put towards your purchase, depending on where you live and the house you buy.
  • Family Home Guarantee: this is a scheme that helps eligible single parents or guardians of one or more dependent children purchase a home within the set price cap with as little as a 2% deposit.
  • Buying a cheaper property: if the issue is that your deposit is too small for your price range, you might simply need to adjust your price range.
  • The bank of mum and dad: while some people will be in a better financial position to act as a guarantor, others might be better financially suited to contribute directly to their children's deposits. Parents are currently giving their kids $74,040 towards a home deposit, which helps cut down the five-year barrier for couples to save for a deposit.

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More questions about guarantor home loans

What’s the difference between a mortgage guarantor and a co-borrower?

A guarantor and a co-borrower play very different roles in a home loan agreement. A co-borrower is a joint applicant for the loan, equally responsible for repayments and owns a share of the purchased property. In contrast, a guarantor provides financial backing without being involved in regular repayments or ownership. The guarantor steps in only if the borrower defaults, offering additional security to the lender. This distinction affects not only the legal responsibilities but also the risks and benefits associated with each role.

Does a guarantor home loan have more fees?

Yes, loans with guarantors are likely to come with additional fees. This is primarily the case because the lender will need to value their home as well as yours. Most other fees are likely to be the same or similar regardless of whether you have a guarantor, though.

Does the guarantor’s home loan need to be with the same lender?

No, the guarantor’s home loan doesn’t necessarily have to be with the same lender as the borrower’s loan, though this can make it easier. Either way, the guarantor must provide equity or collateral that meets the new lender’s requirements. In cases where the guarantor’s property is tied to a different lender, a detailed assessment and approval process will be required to allow the use of that equity as security. This may involve additional steps, such as refinancing or providing a legal guarantee.

Can I get a guarantor for an investment property?

Yes, guarantors can be used for investment property loans, though eligibility and conditions may vary between lenders. However, both parties should consider the increased risks associated with investment properties, such as potential market fluctuations or rental income shortfalls, before proceeding.

Will having a guarantor on my home loan impact their credit score?

Yes, a guarantor’s credit score will be impacted slightly by the hard credit check conducted by the lender when they’re processing the application. You may see a small drop, but it isn’t really much to worry about. However, the only other time a home loan impacts a guarantor’s credit score is if the borrower defaults and leaves their guarantor to pay off the debt.

What happens if a guarantor sells their house?

If a guarantor decides to sell their property, they must ensure the guaranteed portion of the borrower’s loan is resolved beforehand. This typically involves the borrower refinancing to release the guarantor or reducing the loan balance to a point where the guarantor is no longer needed.

If the guarantor owns multiple properties, they may be able to transfer the security to another asset, subject to lender approval. This would likely involve refinancing the loan and having this property valued as well.

Will a guarantor be liable as soon as a home loan repayment is missed?

No, one missed payment won’t bring your guarantor into play. Your lender will make contact with you to address the missed or late payment before taking any further action. If it isn’t resolved, though, you may be deemed to have defaulted, which will then drag your guarantor into the situation.

Is loan approval guaranteed with a guarantor?

No, home loan approval is never guaranteed. All lenders must assess each application on its merits and abide by responsible lending obligations to ensure the mortgage is affordable for the applicant.

Is it better for parents to go guarantor on their children's loan or gift them money for a deposit?

Whether one option is better than another is up to the home loan applicant’s parents. If they’re happy to gift their child a sum of money to go towards their deposit, this will likely result in less interest paid overall. However, if they don’t want to put up any of their own money, being guarantors can help their child without impacting their bank balance (unless something goes wrong).