Family pledge & family guarantee home loans

Rates and Fees verified correct on December 6th, 2016

Get a foot in the door with a guarantor home loan

family guarantee home loanWith house prices in Australian capital cities out of reach for many first home buyers, saving the deposit you need for a home loan could take several years. Of course, by that time house prices may well have increased even further beyond your reach, so how can you find a way to get into the property market?

One option worth considering is a family pledge home loan. Also known as family guarantee home loans and guarantor home loans, these types of mortgages allow you to make up for the fact that you don’t have a sufficient deposit saved by using the equity in a family member’s house as security on your loan.

There are plenty of advantages and a few potential drawbacks to family guarantee home loans, so read on to find out whether they’re right for you.

What is a family guarantee?

A family guarantee is a type of guarantee that can be made to secure a property. This is  done by securing the deposit shortfall to a property owned by the guarantor, such as your parents or a close family member. It is also known as a guarantor home loan.

How does a family guarantee work?

A family pledge allows family members to support each other without actually providing any cash. They allow you to use the equity in your parents’ property or another family member’s property as security on a home loan. Guarantors are limited to immediate family members, including parents, grandparents and siblings.

While it was once standard practice to guarantee the entire loan and put your home on the line, today the security on the new home loan can be split and you can limit your guarantee. For example, the equity in your parents’ property may be used as security for 20% of the loan, while the property you are purchasing will be used as security for the other 80% of the loan. So if you’re helping your kids purchase a property for $500,000, your 20% guarantee is only $100,000.

From a bank’s point of view, a family pledge makes them much more likely to approve a home loan. With more than one security on a loan, your bank will have an extra level of protection if you are unable to make repayments and default on your loan.

At the same time, your children can get into their own home sooner, avoid the cost of mortgage insurance, and even have the power to borrow 100% of the purchase price of their property.

  • How much do they have to guarantee? A common strategy is to guarantee enough equity so that the borrower avoids paying Lenders' Mortgage Insurance (LMI). A parent will need to guarantee 20% of the purchase price of the new property if the borrower has no deposit.
  • What can be bought with a family guarantee? The family guarantee can be used to buy a home or invest in residential property so buyers will be able to use normal home loans and investment home loans.

About Home Loan Guarantors

What are the benefits?

The family guarantee will allow you to do many things that you would have previously been unable to do. The main things the family guarantee will allow you to do will be:

  • Access finance. Most loans will have a minimum deposit that will have to be paid upfront in order to be accepted. This will usually be around 20% or slightly less if you want to pay LMI. With a family guarantee you will be able to borrow more money and provide less of a deposit which will allow you to buy a home sooner.

  • Avoid LMI. Borrowing more than 80% LVR usually requires you to take out lender’s mortgage insurance, but a family guarantee means this extra expense can be avoided.

  • Increase borrowing power. A family guarantee can boost your borrowing power. The family guarantee will often be used to cover a deposit that can't be paid so you will be able to borrow close to 100% of the loan in some cases if properly secured. Often, guarantor borrowers can borrow 100% of a property value plus costs.

  • Eligible for FHOG. Taking out a family pledge home loan means you are still eligible for financial assistance through the First Home Owners Grant. In addition, it also means you will be eligible to access most mortgage products from a lender.
  • Limit your guarantee. While the traditional approach is to guarantee the full loan, in many cases you have the option of guaranteeing just a portion of the loan, for example 20%. Once the standard LVR requirements of the loan product have been met due to loan repayments being made or a rise in the valuation of the home, the guarantee on the loan is released.

What are the drawbacks?

  • Putting the family home at risk. If you’re the guarantor you could be putting your family home at risk, so consider all your options before choosing this approach.
  • Not receiving expert advice. If you’re considering applying for a family guarantee home loan, it’s important that you seek out independent financial and legal advice first. You need to understand exactly what the guarantor be liable for in the event that you default on the loan.
  • Not all banks offer family guarantees. Family pledge home loans aren’t offered by all lenders, so the best thing to do is approach a mortgage broker for advice tailored to your needs.

Home loans with a family guarantee feature

Rates last updated December 6th, 2016.

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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
Enjoy a fixed home loan with discounts on rates and other NAB products.
3.75% 4.87% $0 $395 p.a. 95% Go to site More info
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan - Up to 110% LVR
Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.89% 3.89% $0 $0 p.a. 110% Go to site More info
NAB Base Variable Rate Home Loan - Owner Occupier (P&I)
A competitive no frills home loan with no application fees for a limited time. 250,000 Velocity Frequent Flyer point offer, conditions apply.
4.10% 4.14% $0 $0 p.a. 95% Go to site More info
NAB Tailored Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier)
Flexible fixed rate home loan which will allow you to take a break from repayments if you're ahead of scheduled repayments. 250,000 Velocity Frequent Flyer point offer, conditions apply.
3.99% 5.04% $600 $8 monthly ($96 p.a.) 95% Go to site More info
IMB Essential Home Loan - LVR > 80% (Owner Occupier)
Enjoy a 100% offset account and no monthly fees.
4.31% 4.33% $0 $0 p.a. 95% Go to site More info
NAB Tailored Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
A fixed rate home loan with the ability to lock the interest rate at the time of loan approval for up to 3 months. 250,000 Velocity Frequent Flyer point offer, conditions apply.
3.85% 5.12% $600 $8 monthly ($96 p.a.) 95% Go to site More info
ANZ Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
Lock in your rate for 2 years with an interest only option.
3.90% 5.06% $600 $10 monthly ($120 p.a.) 95% More info
Westpac Flexi First Option Home Loan - 3 Years Introductory Special Offer (New Owner Occupier, P&I)
A limited time deal for new owner occupiers. Advertised rate includes 1.03%p.a. discount for the first two years.
3.99% 4.37% $0 $0 p.a. 95% More info
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate (Owner Occupier)
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cash back available for refinancers, conditions apply.
3.99% 5.07% $0 $395 p.a. 95% More info
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Owner Occupier)
Fee free extra repayments available during the fixed term. $1,250 cash back offer for refinancers. Conditions apply.
3.99% 5.00% $0 $395 p.a. 95% More info
Beyond Bank Basic Variable Rate Loan - (Owner Occupier)
Enjoy 100% offset account with redraw facility and borrow up to 95% LVR with low monthly service fee.
4.40% 4.57% $445 $11 monthly ($132 p.a.) 95% More info
ING  DIRECT Orange Advantage Loan - $150,000+ (LVR > 90% Owner Occupier)
A fully featured home loan with an offset account and discounts available.
4.65% 4.86% $0 $199 p.a. 95% More info
Commonwealth Bank Standard Variable Home Loan - Owner Occupier
Standard variable home loan with a low doc option for self-employed borrowers.
5.22% 5.37% $600 $8 monthly ($96 p.a.) 80% More info
Credit Union SA Variable Rate Home Loan - $20k and above (Owner Occupier)
A variable home loan that allows you to borrow from $20,000.
5.19% 5.25% $600 $0 p.a. 80% More info
Suncorp Bank Standard Variable Rate Home Loan  - (Owner Occupier)
Enjoy a competitive interest rate, make fee free extra repayments and a redraw facility.
5.40% 5.56% $990 $10 monthly ($120 p.a.) 95% More info
ANZ Breakfree Home Loan Package  - $250,000 up to $499,999 (LVR >80% Owner Occupier)
Pay no application fee with 100% offset account with redraw facility and borrow up to 95% LVR.
4.50% 4.60% $0 $395 p.a. 95% More info
Bank of Melbourne Basic Home Loan - Regular Rate (Owner Occupiers, P&I)
Ideal for first home owners or anyone who wants a no-frills, basic variable rate home loan.
4.64% 4.69% $500 $0 p.a. 95% More info
St.George Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
A no frills loan with a competitive rate and a maximum LVR of 95%.
4.08% 4.09% $0 $0 p.a. 95% More info
Westpac Rocket Repay Home Loan - Principal and Interest
The Westpac Rocket Repay Home Loan lets borrowers to own their home sooner with a 100% offset to save on interest.
5.29% 5.43% $600 $8 monthly ($96 p.a.) 95% More info

How much deposit do I need?

The amount of deposit you will need to save for a loan varies depending on the lender, the loan product you choose and your individual borrowing circumstances. While in some cases you might be allowed to borrow up to 95% loan-to-value (LVR) ratio, as a general rule it’s a good idea to have a 20% deposit saved. This is because if you need to borrow more than 80% LVR, you will most likely have to take out lender’s mortgage insurance (LMI) on your loan, which is an additional expense of several thousand dollars.

It’s also worth pointing out that there are many other expenses to consider when you purchase a property, including stamp duty, conveyancing fees, home loan application fees and more. Opting for a guarantor home loan can help you cover the costs of property ownership.

The Big Four family guarantee loans

There are several family guarantees you can choose from. below we will look at the Big Four Banks and their family guarantee loans.

ANZ Family Guarantee

The ANZ Bank Family Guarantee allows some family members to use the equity in their home as a security for a part of your total home loan. Family members include parents, parents-in-law, stepparents and grandparents and siblings will be considered. With this you’ll be able to buy a property sooner and avoid paying the premium for Lenders Mortgage Insurance according to the ANZ website. You could also maximise the money you ought to borrow.

NAB Family Guarantee

The NAB Family Guarantee permits a family member like a parent to use the equity in their existing home as a security on the new home loan of the borrower. There are some features you might want to be aware of. First of all this guarantee may be used to secure a range of NAB branded home loans, you can still choose the loan best suited for you. Second, this guarantee has to be secured by either a first registered residential mortgage or NAB Term Deposit.

Commonwealth Family Equity

The Commonwealth Bank Family Equity provides five financing options. This options go from family member acting as a guarantor and therefore giving some kind of security towards a loan, to giving assistance with mortgage repayments. The Family Equity is suitable for borrowers who are unable to service the loan.

Westpac Rocket Investment Loan

Westpac allow you to guarantee a loan with the help your family. They also have family guarantee options within some of the investment loans. The Westpac Rocket Investment Loan, for instance, offers a family guarantee feature.This feature allows Westpac customers to borrow 95% of the purchase price and associated costs where their parents guarantee the loan through the provision of another security property.

What to expect from these loans

There are a couple of different family pledge loans out there. These loans are either equity support or income support and they both work differently from each other.

Equity support

This type of loan is probably the most popular. This means that the person who is providing the support (the family member) will put up his or her equity as support for your loan. This will be the security provided that is necessary for the loan to be granted. First-time homebuyers find it quite difficult to come up with the 20% deposit that is necessary to get into a home. The person who is the guarantor (the family member) is then responsible for the percentage that is above the 80% that you borrowed. This will cover the gap in the deposit.

Income support

This loan guarantees the entire loan instead of the amount that is above 20% like the previous loan, as the borrowers can't afford repayments on their own with their current income. These loans are uncommon, but may be used for recent graduates who have gotten their first job without a huge salary. This loan will provide support for their income as they climb the ladder to better paying positions. Once the borrower has a higher income, the support guarantee could be removed if the contract allows for this.

These types of loans are a great way for families to help each other when you are just getting started out there. As with any loan, you should make yourself fully aware of all of the requirements before entering into the contract so you know what you're getting into. There are some risks to these loans so educating yourself will be necessary to minimise those risks.

Family pledge loans

Buying a home can be a difficult process. There's the stress of finding the home but there is also the stress of getting approved for the financing. Oftentimes, people are using financing or credit for the very first time for a large purchase such as a home. This can be seen as risky to lenders. There is something you can do, that will make it possible for you to get the loan for your dream home.

Family pledge loans

Help when you need it

There is a type of loan that you might need if you are someone whose credit is not perfect or you simply don't have a lot of credit history at this point in your life. You can opt for a family pledge loan and that will make it possible for you to obtain the funding you need for your home. These types of loans require that someone else other than yourself 'guarantee' the loan. This can be a parent or parents, a brother or sister or really anyone in your family that would be comfortable offering you some help in this way.

This support can come by way of using their own income to help to supplement the borrower's or they can use their own property as a security for the loan. This is a wonderful way for family members to help each other out in order to achieve dreams.

Reasons for borrowers to choose a family pledge loan

There is no one single reason that people choose family pledge Loans but here are a few:

  • You just started a new job – If you've just graduated and recently acquired a job in your field, it is a wonderful thing but you may not have the salary and subsequently the buying power necessary to purchase a home. This is where a family pledge loan really helps out. These loans will help you to buy the house that you would like now while waiting for your income to increase. When your income is higher then you can pay off your loan a little faster.

  • Reducing or eliminating mortgage insurance – If you are able to purchase a home, but the chosen loan would require mortgage insurance then this is a time that a family pledge loan will help you out. If a family member can assist you then you will have more purchasing power and you will not need to pay LMI. This insurance only benefits the lender so if you can avoid it it will be much better for you and you'll save money.

  • You want to get into the real estate market – Let's say you want to get into real estate but your credit is a little week still, then a family pledge loan will allow you to get into the game without having to wait until your credit strengthens. You will be able to get that first home you've been dying for but weren't sure how you could do it.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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24 Responses to Family pledge & family guarantee home loans

  1. Default Gravatar
    Ivy | November 30, 2016

    Hi I have been a guarantor for some years now when does it stop and we get clear and our deeds are return to us regards

    • Staff
      Anndy | November 30, 2016

      Hi Ivy,

      Thanks for your question.

      Generally, a guarantee will be released once the standard LVR requirements of the loan product have been met due to loan repayments or an increase in the valuation of the home. You can get more details on this by directly contacting the bank or lender.

      Cheers,
      Anndy

  2. Default Gravatar
    Tanya | August 23, 2016

    Hi,
    I am wanting to purchase a property of $180,000 with a guarantor I am just wondering what criteria is necessary such as do I need to have been in my jo for a certain time etc.

    • Staff
      May | August 24, 2016

      Hi Tanya,

      Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage experts and don’t offer any of the products or services on our website.

      Generally, if you apply for a home loan, the lender would look at and assess your income, job stability, assets, debts and credit rating. If you’re looking for a home loan with a guarantor, you can compare a range of loans in the market on this page.

      I’d also recommend that you seek an advice from a mortgage broker who will take all your circumstances into account and offer you a range of lending options.

      I hope this has helped.

      Regards,
      May

  3. Default Gravatar
    ANTHONY | March 23, 2015

    My wife and I are 66 and would like to help our son buy a home, we have the money but if we use all our savings we will leave nothing for our on going future, can we help him without putting money out as he’ll inherit all our estate THANKS

    • Staff
      Marc | March 24, 2015

      Hi Anthony,
      thanks for the question.

      Depending on your situation and the lender your son opts to go with, a guarantor option might be available. This will see some of your property go towards your son’s deposit. I recommend contacting one of the lenders on this page directly or speaking to a mortgage broker about this.

      I hope this helps,
      Marc.

  4. Default Gravatar
    amanda | February 18, 2015

    will they do family guarntors loans if the person wanting the actual loan has bad credit

    • Staff
      Shirley | February 19, 2015

      Hi Amanda,

      Thanks for your question.

      These type of applications are handled on a case by case basis. There are few factors to consider, such as the lender’s policy, the severity of your bad credit and the financial position of your guarantor.

      If you would like to discuss your eligibility or options, please get in touch with a lender featured on this page.

      Cheers,
      Shirley

  5. Default Gravatar
    nicole | February 17, 2015

    hello,
    If my husband and myself along with my brother and his wife want to invest in a property together, how can we set this up without my brother geing a guarantor??

    • Staff
      Shirley | February 18, 2015

      Hi Nicole,

      Thanks for your question.

      Assuming that you mean that you would not like your brother to be on the mortgage, you can still set up the property title so it includes your brother. This means he has no debt obligations but a portion of the property still belongs to him.

      You’ll need to approach your trusted solicitor to organise this so the contract is set up in the correct and legal manner.

      Cheers,
      Shirley

  6. Default Gravatar
    Sarah | August 1, 2014

    I am interested to know which banks are offering Low Doc loans that accept family guarantees.

    • Staff
      Shirley | August 4, 2014

      Hi Sarah,

      Thanks for your question.

      Please see this page for low-doc home loans.

      St.George, Aussie and BoM provider guarantor home loans if the applicant is eligible.

      Cheers,
      Shirley

  7. Default Gravatar
    Maria | July 22, 2014

    We are considering a family pledge for our son. Is it true that once his property has increased to the value of our pledge, we are released from the contract.

    • Staff
      Shirley | July 23, 2014

      Hi Maria,

      Thanks for your question.

      It depends on the structure of the loan and how you set it up.

      If one of the goals is to pay off and release the guarantor as soon as possible, please communicate this to your lender or mortgage broker and they can organise this for you.

      Cheers,
      Shirley

  8. Default Gravatar
    Peter | July 21, 2014

    How could I find out what additional costing will be involved for my parents, whom are considering assisting?
    A friend has been advised that the costs are very high.
    Even though St George’s brochure has stated a law, which mentions that the guarantor will the very last person sought, in the event that we default, what is that risk?
    Peter & Kathy

    • Staff
      Shirley | July 21, 2014

      Hi Peter and Kathy,

      Thanks for your question.

      To find out the additional costs, please speak to your lender. Each lender will have different fee structure when adding a guarantor to the loan.

      If, in the even that your default, the guarantors could be held liable for the debt that is outstanding and their credit history would be affected too. For more information about the risks, please see this page.

      Cheers,
      Shirley

  9. Default Gravatar
    Perce | July 1, 2014

    Re NAB Family Guarantee Home Loans
    Is a bank officer able to witness the guarantors’ signatures?
    Is it compulsory to obtain a solicitor’s signature?

    Many thanks

    • Staff
      Shirley | July 2, 2014

      Hi Perce,

      Thanks for your question.

      This normally depends on the lender but in most cases the bank officer would need to witness the guarantor’s signature.

      While a solicitor’s signature is not always required, it’s highly recommended that you seek independent legal advice, in case anything happens in the future.

      Cheers,
      Shirley

  10. Default Gravatar
    sharon | May 23, 2014

    Hi I would like to get a home loan my family are my guarantee
    but my credit history is a worry its not a lot and iv tried to sort it is there any chance that i could get a lone

    • Staff
      Elizabeth | May 26, 2014

      Hi Sharon,

      Thanks for your question.

      Having a family guarantee might be able to improve your eligibility for a home loan if you have bad credit. You might want to take a look at our page on home loan options for people with bad credit, to see ways to go about getting a loan and the different non-conforming lenders that might be able to help you.

      I hope this has helped.

      Thanks,

      Elizabeth

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