A guarantor home loan lets you buy a home with little or no deposit by using a family member's property as extra security for the bank, instead of your own savings. Usually a parent offers equity in their home as a "limited guarantee" for part of your loan. Done well, this can bring your effective loan-to-value ratio (LVR) to 80% or below, so you avoid lenders mortgage insurance (LMI) altogether.
What is a guarantor home loan?
A guarantor home loan is a standard home loan with one extra feature: a family member, usually a parent, agrees to guarantee part of your borrowing using equity in their own property. They are not gifting you cash. They are putting up security.
Most lenders use a "limited guarantee". This caps the guarantor's exposure to a set dollar amount, rather than the whole loan. That amount is usually enough to bring your effective LVR down to 80%, which is the threshold most lenders use before charging LMI.
Some lenders will go further and let eligible borrowers finance 100% or more of the purchase price, including costs like stamp duty and legal fees, when a guarantor is involved. This suits first home buyers with a stable income but no savings, often because they have been renting.
The guarantor does not make repayments unless you default. Your loan, your responsibility. But their property is on the line if things go wrong. For background from a government source, see MoneySmart's guide to going guarantor on a loan.
How much deposit do I need with a guarantor?
With a guarantor, you can often borrow with a 0 to 5% deposit and still avoid LMI, because the guarantee makes up the shortfall to 80% LVR. Without a guarantor, you would either need a 20% deposit or accept LMI on a smaller deposit.
Here is how the three common paths compare on a typical purchase.
| Path | Deposit needed | LMI payable | Who carries the risk | |---|---|---|---| | 20% deposit, no guarantor | 20% of purchase price | None | Borrower only | | 5% deposit + First Home Guarantee | 5% of purchase price | None (government-backed) | Borrower only | | Guarantor loan | 0-5% of purchase price (or none) | Usually none | Borrower and guarantor |
A pre-approval will confirm which of these paths a lender will actually offer you, since policies differ between lenders. Our calculators can give you a starting estimate of borrowing power before that conversation.
What are the risks for the guarantor?
The guarantor is liable up to the guaranteed amount if the borrower defaults and the lender cannot recover the shortfall from the sale of the property. This is real financial exposure, not a formality.
Practical risks include:
- The guarantor's own borrowing capacity can be reduced while the guarantee is in place, since lenders treat it as a contingent liability.
- If the borrower misses repayments, the guarantor's credit file can be affected.
- The lender can call on the guarantor's property to cover a shortfall, which could mean the guarantor has to sell or refinance their own home.
- Family relationships can come under strain if repayments become difficult.
Guarantor arrangements carry real risk for the guarantor. Both the borrower and the guarantor should get their own legal and financial advice before proceeding.
How is the guarantee released?
The guarantee is typically released once the borrower's loan balance falls to around 80% of the property's value. This can happen two ways: the borrower pays down the loan through normal repayments, or the property's value rises enough that the same loan balance now represents 80% LVR or less.
Once that threshold is reached, the borrower or guarantor can apply to the lender to have the guarantee removed. The lender will usually require a valuation to confirm the current LVR first. This is not automatic. Someone needs to apply for it, and it is worth diarising the milestone so it does not sit forgotten for years.
Some borrowers make extra repayments in the early years specifically to reach 80% LVR faster and free their guarantor sooner. This is worth considering if the guarantor's own plans, such as downsizing or retirement, have a timeline attached.
Can I combine a guarantor with the First Home Guarantee or FHOG?
Generally no, not in the same transaction. The First Home Guarantee (FHG) is a government scheme where the government itself acts as guarantor for part of your loan, letting you buy with a 5% deposit and no LMI. Since October 2025 there are no income caps, and the Brisbane cap sits at $1,000,000. A family guarantor arrangement is a private substitute for the FHG, not an addition to it. You would generally use one or the other, depending on which gives you better terms and whether you have a family member able and willing to help.
The First Home Owner Grant (FHOG) is different again and can usually sit alongside either path. In Queensland, eligible first home buyers can receive a $30,000 grant for new homes up to $750,000, for contracts signed by 30 June 2026. QLD also offers zero stamp duty on new builds for eligible first home buyers, and established homes are duty-free up to $700,000. Our grants page has the full detail, and our first home buyer guide walks through how these schemes fit together.
If you are working out which combination suits your situation, our first home buyer services page outlines how we approach this with clients.
What if my parents' home still has a mortgage?
A guarantor's home does not need to be mortgage-free. What matters is the usable equity, meaning the value of the home minus any existing loan, minus the amount the lender wants to keep as a buffer. If your parents still owe money on their home, the lender will look at how much equity is left after that debt, and whether it covers the guarantee amount required.
Some lenders are more flexible than others on this. A guarantor with a small remaining mortgage and strong equity can often still support a limited guarantee. A guarantor with a large mortgage and little equity may not have enough headroom, and the lender may decline the arrangement or offer a smaller guarantee than first hoped.
This is worth checking with a broker before you get your hopes up on a particular property, since lenders assess guarantor equity differently.
Worked example: $600,000 purchase
Say you are buying a $600,000 home and have no deposit saved, but your parents own their home outright and are willing to help.
- Your loan: $600,000 (100% of purchase price), plus enough to cover stamp duty and costs where the lender allows it.
- Guarantee required: roughly $120,000, being the amount needed to bring your effective LVR down to 80% ($480,000 of $600,000).
- LMI: not payable, because the guarantee covers the gap above 80% LVR.
- Your parents' exposure: capped at the $120,000 guaranteed amount, not the full $600,000 loan.
- Release point: once your loan balance falls to around $480,000 (80% of $600,000), or the property's value rises enough for the same balance to represent 80% LVR, you can apply to release the guarantee.
Considering a guarantor loan? Book a no-obligation consultation with Tom Smith at Kookaburra Finance, Springfield Central. We're FBAA members, accredited with 60+ lenders, and there's no cost to you. Get in touch to talk through your options, or check the calculators first to see what you might be able to borrow.