Guarantor Home Loans: Benefits, Risks, and How to Apply

Guarantor home loans can help homebuyers enter the property market when saving a large deposit feels out of reach. With rising property prices and strict lending rules, many buyers struggle to qualify for a loan. 

By using a family member’s property as security, a guarantor home loan reduces the lender’s risk and improves borrowing options, but it also comes with eligibility requirements and financial risks.

That’s where mortgage brokers like LM Edge come in—offering expert guidance on guarantor home loans and connecting buyers with lenders who provide competitive loan options while ensuring both buyers and guarantors understand the risks and benefits.

Let’s explore how guarantor home loans work, their benefits, and key factors to consider before applying for a mortgage on the Gold Coast.

What Are Guarantor Home Loans?

Guarantor home loans are a type of mortgage where a family member, typically a parent, offers part of their property’s equity as security to help the borrower secure a loan. This arrangement reduces the lender’s risk, allowing the homebuyer to qualify for a loan with little or no deposit. 

Unlike traditional home loans, a guarantor home loan involves a third party who provides additional financial backing without directly contributing cash. This option is especially beneficial for first-time buyers struggling to save a large deposit or meet strict lending criteria. 

However, since the guarantor takes on financial responsibility, it’s important to understand the risks and commitments involved before proceeding with this type of loan.

Who Can Be a Guarantor?

Not everyone qualifies as a guarantor, as lenders require individuals who have a stable financial background and sufficient equity in their property. Typically, guarantors must have a strong credit history, a reliable income, and a property that can be used as collateral. 

Below are the most common people who can act as guarantors:

• Parents – The most common guarantors, helping their children enter the property market.
• Grandparents – Some lenders allow grandparents to use their property equity as security.
• Siblings – In certain cases, a financially stable brother or sister can be a guarantor.
• Spouses or Partners – If one applicant has a weaker financial position, the other can act as a guarantor.
• Extended Family Members – Some lenders may accept uncles, aunts, or even close family friends as guarantors, but this varies by lender.

Key Benefits of Guarantor Loans for Homebuyers

Guarantor home loans offer significant advantages, particularly for first-time buyers who may struggle to meet strict lending requirements. By leveraging a guarantor’s property as security, borrowers can unlock better loan terms and reduce upfront costs. Here are five key benefits:

1. Buy a Home with a Low or No Deposit – Borrowers can access a loan without saving a 20% deposit, making homeownership possible sooner.
2. Avoid Lenders Mortgage Insurance (LMI) – With a guarantor, buyers can bypass costly LMI, saving thousands of dollars.
3. Borrow a Higher Loan Amount – Some lenders may approve a larger loan amount, allowing buyers to purchase a more suitable property.
4. Access Better Interest Rates – Reduced risk for lenders can lead to lower interest rates and better loan terms.
5. Faster Loan Approval – A guarantor strengthens the application, increasing the chances of quick approval with competitive terms.

How Do Guarantor Home Loans Work?

Guarantor home loans work by allowing a family member, usually a parent, to use their property as additional security for the borrower’s loan. Instead of the borrower needing a full 20% deposit, the guarantor provides a portion of their home equity as collateral. 

This reduces the lender’s risk, making it easier for the borrower to secure a home loan with little or no deposit. The guarantor does not make repayments on the loan but agrees to take responsibility for a portion of the debt if the borrower defaults. 

Over time, once the borrower builds enough equity or repays a certain portion of the loan, the guarantor can be released from their obligation.

Sample Scenario

Emma wants to buy her first home for $500,000 but only has $20,000 saved, which is just 4% of the property value. Since most lenders require at least a 20% deposit ($100,000) to avoid Lenders Mortgage Insurance (LMI), Emma would normally need to pay LMI fees. 

However, her parents agree to act as guarantors, using $80,000 of their home equity as security. This brings her total deposit to 20%, allowing her to avoid LMI and secure a better interest rate.

Sample Calculation Breakdown

• Property price: $500,000
• Emma’s savings (4% deposit): $20,000
• Guarantor’s security (16% of the property value): $80,000
• Total security (20% deposit equivalent): $100,000
• Loan amount: $480,000

Since Emma now has the equivalent of a 20% deposit with the help of her guarantor, she qualifies for the home loan without needing to pay LMI, potentially saving $10,000 to $15,000 in extra fees.

This structure helps first-time buyers and low-deposit borrowers enter the property market sooner. However, both the borrower and guarantor must fully understand the risks and responsibilities before proceeding.

What Are the Risks and Responsibilities for Guarantors?

While guarantor home loans can help buyers enter the property market, they also come with financial risks and obligations for the guarantor. Before committing, it’s important to understand the potential consequences and responsibilities involved. Here are the key risks and duties guarantors should be aware of:

Risks for Guarantors:

• Financial Liability – If the borrower defaults, the guarantor is responsible for repaying the guaranteed portion of the loan.
• Impact on Credit Score – Any missed payments or defaults can negatively affect the guarantor’s credit history.
• Reduced Borrowing Capacity – Acting as a guarantor may limit the ability to take out personal or investment loans.
• Risk to Personal Assets – If the borrower cannot repay the loan, the guarantor’s property could be used as security, potentially leading to asset loss.

Responsibilities of a Guarantor:

• Understanding the Loan Terms – Guarantors must review the loan agreement and be aware of their financial obligations.
• Providing Security – The guarantor must have sufficient equity in their property to cover the guarantee.
• Monitoring the Loan – It’s wise for guarantors to stay informed about the borrower’s repayment progress.
• Seeking Legal and Financial Advice – Professional advice can help guarantors understand the risks and exit strategies.

Since being a guarantor is a significant financial commitment, careful consideration and open discussions with the borrower are essential before agreeing to the arrangement.

How to Apply for a Guarantor Home Loan

Applying for a guarantor home loan involves several key steps to ensure both the borrower and the guarantor meet lender requirements. Proper preparation can streamline the process and improve the chances of approval. Here’s a step-by-step guide:

1. Find a Willing and Eligible Guarantor

The first step is to identify a family member who is financially stable and has enough equity in their property to act as a guarantor. The guarantor must have a good credit history and be comfortable taking on financial responsibility. 

Tip: Have an open discussion with your potential guarantor to ensure they fully understand the risks and obligations.

2. Choose the Right Lender and Loan Type

Not all lenders offer guarantor home loans, and loan terms can vary. Research different banks and mortgage lenders to find one that offers favorable terms for both the borrower and the guarantor. 

Tip: A mortgage broker can help compare options and find a lender that best suits your needs.

3. Prepare the Necessary Documentation

Both the borrower and guarantor will need to provide financial documents, including proof of income, credit reports, and property details. Lenders may also require legal documents outlining the guarantor’s obligations. 

Tip: Organising documents in advance can speed up the approval process.

4. Apply for Loan Pre-Approval

Submitting a pre-approval application helps assess your eligibility and determine how much you can borrow. This step also allows the lender to evaluate the guarantor’s financial standing. 

Tip: Pre-approval strengthens your position when negotiating property prices.

5. Undergo Legal and Financial Review

Lenders often require guarantors to seek independent legal and financial advice before final approval. This ensures they fully understand their role and potential risks. 

Tip: Getting legal advice early can prevent complications later.

6. Final Approval and Loan Settlement

Once all conditions are met, the lender will finalise the loan, and funds will be disbursed for the property purchase. The guarantor’s security will remain in place until the borrower meets the required equity threshold. 

Tip: Plan an exit strategy to release the guarantor as soon as possible.

Following these steps carefully can make the application process smoother and help both the borrower and guarantor feel confident in their decision.

FAQs

What are the rules for loan guarantors?

Guarantors must provide additional security and meet lender-specific criteria, including owning property with sufficient equity. They’re liable if the borrower defaults.

How much deposit do I need to buy a house with a guarantor?

With a guarantor, you may not need a deposit at all, as lenders often approve loans for the entire purchase price.

Can I borrow 100% of a home loan with a guarantor?

Yes, guarantor loans allow borrowers to secure up to 100% of the loan amount, plus some buying costs like Stamp Duty.

Do guarantor loans require Lenders Mortgage Insurance?

No, guarantor loans typically eliminate the need for LMI, saving buyers thousands.

Are guarantor loans available for investment properties?

Yes, but they’re more common for owner-occupied properties and first-time buyers.

Can single parents use guarantor loans?

Absolutely. Guarantor loans are a great option for single parents with limited deposits or income.

Is a guarantor liable for the entire loan?

No, lenders often limit the guarantee to a portion of the loan, protecting the guarantor’s assets.

Conclusion

Guarantor home loans on the Gold Coast offer a valuable opportunity for buyers looking to step into the property market with extra support from family. With the right guidance, this option can help you buy a home sooner, avoid costly Lenders Mortgage Insurance, and access better loan terms. 

In 2025, understanding your options and working with an experienced mortgage broker can make all the difference. At LM Edge, we specialise in helping homebuyers and their guarantors find the best loan solutions tailored to their needs. If you’re considering a guarantor home loan, contact us today at 0401 022 182 or visit LM Edge for a free consultation, and let’s make your homeownership goals a reality.