Guarantor loans: How to get a home loan without a big deposit

Rates and fees last updated on

With a guarantor loan you can avoid costly LMI and get a home loan without years of savings. Here's how it works.

If you're not able to save up a deposit, or wish to avoid paying Lender's Mortgage Insurance (LMI), a guarantor can help.

A guarantor assumes responsibility for your home loan if you can't make repayments. This lowers your risk as a borrower, which allows your bank to lend you as much as 100% of the purchase price of a property.

Compare guarantor home loans in the table below

Most of the loans in this table allow guarantors to cover at least a portion of your loan. All loans in this table have a maximum LVR between 90% and 95% and some may require at least 5% deposit of genuine savings.

Rates last updated November 23rd, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.84%
3.84%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.65%
3.66%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.98%
5.13%
$600
$8 monthly ($96 p.a.)
95%
A fixed rate home loan with additional repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.75%
5.05%
$0
$299 p.a.
95%
A fully featured home loan with an offset account and discounts available.
4.04%
5.05%
$600
$8 monthly ($96 p.a.)
95%
Fix in a competitive rate for three years. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.03%
5.04%
$600
$10 monthly ($120 p.a.)
95%
Get a 2-year fixed rate with flexible repayment options to help you save.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
3.79%
5.26%
$600
$0 p.a.
95%
Short term fixed rate home loan with no ongoing fees with an interest only repayment option.
4.19%
4.83%
$0
$395 p.a.
95%
You can save on a host of Westpac products by packaging your 5-year fixed rate home loan.
5.55%
5.74%
$990
$10 monthly ($120 p.a.)
95%
Enjoy a competitive interest rate, make fee free extra repayments and a redraw facility.
4.45%
4.85%
$0
$395 p.a.
95%
Pay no application fee with 100% offset account with redraw facility and borrow up to 95% LVR.
4.62%
4.67%
$500
$0 p.a.
95%
Ideal for first home owners or anyone who wants a no-frills, basic variable rate home loan.
3.78%
3.79%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
5.24%
5.38%
$600
$8 monthly ($96 p.a.)
95%
The Westpac Rocket Repay Home Loan lets borrowers to own their home sooner with a 100% offset to save on interest.
4.70%
5.09%
$0
$395 p.a.
95%
A package home loan with discounted interest rate.

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How do guarantor home loans work?

If you haven't saved enough for a deposit or a lender doubts your ability to repay a loan you may require a guarantor. The guarantor must usually be a parent or immediate family member, and traditionally uses their own property (or rather, the equity in it) as security.

A guarantor can guarantee the entire loan or a portion of it, say 20%.

With a guarantor home loan, the borrower can borrow 100% or even 110% of the property purchase price, allowing them to avoid the cost of lender’s mortgage insurance (LMI) and also pay some of the other expenses associated with buying a home. This gives first homebuyers a great opportunity to get a foothold in the property market.

Lydia and Ryan need a guarantor

Lydia and Ryan

Lydia and Ryan are getting ready to purchase their first home. They searched the market and found a property they wished to purchase. The property's value is $500,000.

Lydia and Ryan have steady incomes but haven't saved the required $25,000 for a 5% deposit. Ryan's parents agree to go guarantor. Their property is fully paid off and worth $1.2 million. Using this property as security, Lydia and Ryan were able to get a loan and avoid paying lender's mortgage insurance as well.

Who can be my guarantor?

Some lenders only accept parents as guarantors but others accept relatives. While every lender has different requirements, the following criteria usually apply as well:

  • Finances. Obviously a guarantor needs equity in their property and a stable income to satisfy lenders.
  • Credit. Your guarantor should have a good personal credit rating.
  • Residency. Lenders generally want a guarantor to be an Australian citizen or permanent resident.
  • Age. A guarantor must be over 18 and typically under 65. Few lenders are comfortable accepting retirees and older people as guarantors. There are exceptions to this, of course.

How much can I borrow with a guarantor?

If the lender isn’t convinced that the borrower will be able to repay the loan, whether it’s because they lose their job, fall ill or are injured, then they are likely to require the signature of a guarantor. This way they have a backup so they can recoup their money if the borrower is no longer able or willing to make the payments. Thus, generally people with little to no credit history, low incomes or young people are often required to have a guarantor if they want to take out a loan.

With the right guarantor, many lenders will let you borrow up to 100% of the value of a property or even slightly above that.

If you already have some money saved for a small deposit a guarantor loan can still be very helpful. If you have a 5% deposit saved you may have to borrow 95% of a property's value. Given that many loans have a maximum LVR of 80% you'd be liable for lender's mortgage insurance (LMI), a major additional cost.

Having a guarantor provide security for the remaining 15% of your deposit lets you get the loan and avoid that extra cost.

  • Note: The majority of lenders won’t give out more than 100% of the cost of purchasing the property even if there is a family guarantee or they may ask that the borrower put down a small deposit. However, some lenders will gladly offer 105% of the price of the property, which can make life a lot easier because someone can purchase a property and cover the cost of stamp duty without having to save a penny. Remember, these are approximate guides only.

What are the benefits of guarantor home loans?

There are several benefits to guarantor loans, depending on your circumstances and financial goals. With a guarantor home loan you can:

  • Get into the property market faster. Once you're in the market and paying off your loan you can build up equity and enjoy capital gains if the property grows in value. If you spend more months or years saving up for a full deposit without a guarantor the property might grow in value and you'd need to save even more.
  • Avoid LMI. Lenders mortgage insurance can add thousands of dollars to your home loan. A guarantor loan takes this cost out of the equation.
  • Get a better rate. There are loans for borrowers with small deposits but they often have higher interest rates as well as LMI. Using a guarantor can unlock better loans with more favourable rates.

While the benefits are clear, the risks of guarantor loans are also very self-evident.

What happens to my guarantor if I can't repay my loan?

Your guarantor takes on a major financial risk. If you cannot make a mortgage repayment your guarantor's property might ultimately become the bank's property. This can be costly if the secured property is an investment. If the property is the family home it could be ruinous.

Guarantor loans are deeply personal and potentially risky. Financial strain can lead to relationship breakdowns and deep distress.

Thankfully, a guarantor is only liable to repay the amount they guarantee. Once that amount is repaid the guarantor is released from further liability (the borrower, obviously, is not).

John and Rachel's financial woes

Happy coupleJohn and Rachel purchase a $600,000 apartment with a 5% deposit ($30,000). Rachel's parents guarantee a further 15% ($90,000).

John and Rachel repay $150,000 of their loan over the next few years. Sadly, John loses his job and the couple struggle to make repayments. Thankfully Rachel's parents are no longer liable because the $90,000 they guaranteed has been repaid. While Rachel's parents are off the hook they do have to make some adjustments: John and Rachel are forced to sell up and move back in with them!

I'm thinking of going guarantor for my child: what do I need to know?

Agreeing to act as guarantor is a serious step and you need to consider your position very carefully. Ask yourself the following questions:

  • Can I afford to go guarantor? Assess your financial situation realistically. Plan out a scenario where you suddenly become liable for the full amount you've guaranteed. Could you afford to pay this amount?
  • Can the borrower afford this loan? Try to assess the borrower's financial situation as clearly as possible. Don't make this judgement on instinct either: ask for hard evidence. If this causes a problem then going guarantor would be very unwise.
  • How is your relationship with the borrower? Are you on good personal terms? Just because you're close family doesn't mean you get along at the best of times. And with large sums of money involved even good relationships can become strained.

Top tips for going Guarantor

  1. Make sure you are fully aware of your own financial situation and that of the person you are considering going guarantor for because the last thing you need is to have to pay someone else's loan off. If it does come to that, you also need to make sure you can afford to make the payment, so think well before you agree.
  2. Consider your relationship with the person borrowing the money. The closer you are, the more likely it is that you won't have any problems or if the worst does happen, you stand a better chance of recovering your money.
  3. Get independent legal and financial advice to make sure you fully understand what this process entails and how it will affect your financial situation.
  4. Ensure you can cover the monthly repayments without outside help before you commit.
  5. To further reduce your risk exposure, make sure the loan is not more than 90% of the total value of the property.
  6. Exiting as a guarantor. Even if the loan is for 30 years, that doesn't mean the guarantee needs to be in place for the entire duration.
  7. Guarantor protection. There are ways for a borrower to protect the guarantor from losing the roof over their head and even from having to pay the loan by taking out insurance.

Never sign a contract for a guarantor loan without first seeking advice from a qualified finance lawyer. While lenders generally set all the terms of a contract it's important to know exactly what you're getting into. You need to be aware of the extent of your liability and responsibilities if the borrower defaults. If possible, you should try to limit your guarantee in amount and time. But keep in mind that lenders may be reluctant to alter a contract.

Need expert help? A mortgage broker can negotiate a guarantor loan on your behalf

More questions about guarantor home loans

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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36 Responses

  1. Default Gravatar
    RachaelApril 22, 2016

    We want to buy a house and looking into no deposit Lon with a guarantor but only my partner works $45k a year and I am on centrelink and we have two children. Would it be possible that any bank would lend to us we are looking at a house $160k
    Thanks

    • Staff
      BelindaApril 26, 2016Staff

      Hi Rachael,

      Thanks for getting in touch.

      Your ability to qualify for a home loan will depend on several factors; your combined income, assets, liabilities, credit history, and the lender’s eligibility criteria for a particular product.

      Unfortunately, it can be difficult to qualify for a home loan if you’re receiving Centrelink benefits and if only one applicant is working as the lender may view you as a high-risk borrower. However, there are mortgage brokers who can help you find lenders, such as specialist or non-bank lenders, that are more likely to review your application.

      You can read more about no deposit home loans on this page, and you can also compare 95% loan-to-value (LVR) home loans. We also have an article about home loans for Centrelink recipients which may help you.

      When you apply for a no deposit or guarantor home loan, the application process can be more lengthy compared to a traditional home loan as the lender will need to assess the security and financial position of your guarantor. However, you can take measures to improve your chance of being approved. This may involve reducing your existing debts (e.g. credit cards) and making regular deposits into a high-interest savings account to show the lender that you have financial discipline.

      All the best,
      Belinda

  2. Default Gravatar
    JadeNovember 23, 2015

    Can I get a guarantor loan if the guarantor lives overseas and their equity is in the property they own overseas?

    • Staff
      MarcNovember 24, 2015Staff

      Hi Jade,
      thanks for the question.

      Lenders generally require the guarantor to be Australian citizens, although some lenders will allow them to be working or living overseas. If the loan is being secured with the equity of a property (and not cash), the property is usually required to be in Australia.

      I hope this helps,
      Marc.

  3. Default Gravatar
    AbbyOctober 31, 2015

    My partner and I are planning on buying our first home. If we have a guarantor, are we still eligible for the first home owners grant?

    • Staff
      MarcNovember 2, 2015Staff

      Hi Abby,
      thanks for the question.

      The use of a guarantor doesn’t usually exclude buyers from the First Home Owners Grant. Keep in mind that depending on the state there may be limits on the value of the property and whether the grant can be used for established or new properties.

      You can read more about the first home owners grant here.

      I hope this helps,
      Marc.

  4. Default Gravatar
    ThereseSeptember 29, 2015

    Hi,

    My partner & I would like to consolidate debt into a new mortgage, our equity just falls short to do this, are we able to use a partial guarantor for the shortfall? Our loan is 400k the property worth $475k debts of $57k

    • Staff
      MarcSeptember 30, 2015Staff

      Hi Therese,
      thanks for the question.

      This will depend on the lender, but generally speaking a guarantor can guarantee any portion they’re comfortable with.

      I hope this helps,
      Marc.

  5. Default Gravatar
    deniseAugust 7, 2015

    if i want to borrow 100,000 as a secure personal loan, can my mother who is a pensioner and owns her home can we use her home as the security and what would be involved?

    • Staff
      MarcAugust 7, 2015Staff

      Hi Denise,
      thanks for the question.

      Some personal loan providers will allow this, so it’s a good idea to compare secured personal loans and then contact the lender directly for more information. What’s involved in using property as security is that the guarantor will be required to guarantee a certain portion or the full amount of the loan. They then become responsible for the payment of the loan in the event that the primary borrower isn’t able to service the loan any longer.

      I hope this helps,
      Marc.

  6. Default Gravatar
    nellJune 28, 2015

    can someone sell there home if they have used some of it to be a guarantor

    • Staff
      JodieJune 30, 2015Staff

      Hi Nell,

      Thank you for contacting finder.com.au, a financial comparison website.

      If your home is still being held as equity for the guarantor loan then you will need to have this released by the borrower you went guarantor for before you can sell your home. The borrower can release your property from the guarantee loan by paying out the portion of the loan that your home is held as equity for.

      We have a page on guarantor loans that includes information for those thinking of being, or who are, guarantor to a loan.

      It might also be best to speak to the borrower you have gone guarantor for as well as a financial advisor to see how you can proceed if you wish to sell your property.

      Regards
      Jodie

  7. Default Gravatar
    StephenMay 20, 2015

    HI,
    We already have an investment loan for a house, which we used a guarantor to mitigate paying LMI. My question is, can we use the same guarantor to buy a house to live in, again to mitigate LMI.
    Thanks

    • Staff
      BelindaMay 25, 2015Staff

      Hi Stephen,

      Thanks for your enquiry.

      Depending on your lender, you may be able to use the same guarantor to help buy your property.

      It would be best that you contact a lender directly to discuss your options.

      Thanks,
      Belinda

  8. Default Gravatar
    MumMay 1, 2015

    We went guarantor for our daughter and her husband for their home loan and now they are separating. If they sell the house they will be left with a $10,000 debt. She wants to sell and he doesn’t but there is no guarantee he will help contribute to the mortgage payments. Can we as guarantors make them sell the house?

    • Staff
      BelindaMay 26, 2015Staff

      Hi Mum,

      Thanks for your enquiry.

      As a guarantor, you do not have rights to own or sell the property that was bought with the loan.

      However, it would be best to contact a mortgage broker and to seek financial advice to discuss your rights as a guarantor in this situation.

      Thanks,
      Belinda

  9. Default Gravatar
    debApril 17, 2015

    if I was guarantor for a home loan for my son of say $500000 can I be guarantor for a specified amount of time like 2years

    • Staff
      BelindaApril 17, 2015Staff

      Hi Deb,

      Thanks for your question.

      Depending on the lender, it may be possible to limit your guarantee for a limited amount of time.

      Generally, the guarantee will remain in place until you apply to have it removed. However, it is important to realise that if you were to cancel your guarantee soon after the loan settlement, the borrowers may be eligible to pay Lenders Mortgage Insurance (LMI).

      After a few years, however, it is likely that the principal repayments will have impacted the LVR and should you decide to cancel the guarantee, then LMI may not be payable.

      The policies of each lender will vary, so make sure you seek financial advice to find a home loan that suits both the borrower and the guarantor.

      I hope you find this useful.

      Thanks,

      Belinda

  10. Default Gravatar
    csmibsMarch 2, 2015

    is it possible for the borrower to take certain steps to protect a guarantor against any risks? Such as taking out income protection insurance/life insurance etc?

    • Staff
      ShirleyMarch 3, 2015Staff

      Hi csmibs,

      Thanks for your question.

      It depends on the situation and type of policy that you’d like to take out for your guarantor. If it’s life insurance, you’d have to prove financial dependance.

      We recommend that you speak to an insurance broker about your options and which policy is best for you.

      Cheers,
      Shirley

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