A family pledge or family guarantee home loan is a way of getting a mortgage with support from a guarantor. This is usually a family member who owns a property and is willing to help you out.
Many lenders refer to these loans as family pledge loans. But in many cases you simply apply for an existing home loan and attach a guarantor to it. Family pledges or guarantee home loans aren't specific products themselves.
Buying a house with a family pledge makes it easier to get your loan approved because the guarantor offers your lender more security. But this is where it gets riskier too. Family and finance don't always mix. If you can't repay the loan, your family member might have to.
Home loans with a family guarantee feature
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A family pledge allows 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.
The guarantor pledges to use their property to back your loan. If for whatever reason you can't repay the loan later, your lender may force your guarantor to pay all or part of your debt. This is what makes pledges risky.
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.
What are the benefits of family pledges?
For the right type of borrower, a family pledge can be a life saver:
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 as low as 5%. With a family guarantee you may 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 (LMI), 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.
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 will 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.
Which lenders accept family pledges?
Many Australian lenders accept family pledges or guarantees on many of their home loans, usually on a case by case basis. All of Australia's Big Four banks have some kind of policy supporting family pledges.
Be sure to check that your lender does accept pledges and check any eligibility criteria before you submit a full application. You don't want to waste time and get rejected after applying.
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Frequently asked questions about Family pledge or guarantee home loans
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.
A family pledge allows 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.
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.
The family guarantee will allow you to:
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 less if you pay LMI. With a family guarantee you may 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.
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 will 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
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
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Is it possible to pledge your investment home which has doubled in value, but still has a mortgage on it for your child.
Finder
SarahSeptember 9, 2021Finder
Hi Tash,
Yes, it is possible. In general, a family pledge allows you to use the equity of any property you own. It is best to get in touch with the lender to make sure you meet the requirements, and also consider the risks involved. It might be an idea to have a plan or goal for your child to refinance in five years once they’ve had some property price growth, to release your pledge, for instance?
To apply, you can click the Go to site icon on our page.
Cheers,
Sarah
MariannaJuly 12, 2018
Currently, my dad is guarantor 100% for the property I am in. I am looking to refinance however most banks are only offering 20% from guarantor and rest I have to find. As this is not possible is there any banks out there that would do 100%?
Finder
JhezelynJuly 16, 2018Finder
Hello Marianna,
Thank you for your comment.
For refinancing, the first that you’d do is to speak to your current lender if they can grant you a 100% loan. If not, you may consider other options. While it is very little to no 100% home loans offer, there are ways that you can apply for a refinanced mortgage with little equity such as through a guarantor loan.
There are lenders that can offer you up to 100% LVR with a guarantor loan. Please check your eligibility with lenders on the list. Most importantly, please seek to advise from a mortgage broker so they can provide you with options based on your needs. I hope this helps.
Regards,
Jhezelyn
IvyNovember 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
Finder
DeeNovember 30, 2016Finder
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
TanyaAugust 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.
Finder
MayAugust 24, 2016Finder
Hi Tanya,
Thank you for contacting Finder.
Generally, if you apply for a home loan, the lender would look at and assess your income, job stability, assets, debts, and credit rating. Please check our guide about home loan guarantors if you’re looking for a home loan with a guarantor.
I’d also recommend that you seek a piece of 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
ANTHONYMarch 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
Finder
MarcMarch 24, 2015Finder
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 by selecting ‘Go to Site’ to head over to their website to apply.
I also recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that is more inclined to review your application.
I hope this helps,
Marc
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Is it possible to pledge your investment home which has doubled in value, but still has a mortgage on it for your child.
Hi Tash,
Yes, it is possible. In general, a family pledge allows you to use the equity of any property you own. It is best to get in touch with the lender to make sure you meet the requirements, and also consider the risks involved. It might be an idea to have a plan or goal for your child to refinance in five years once they’ve had some property price growth, to release your pledge, for instance?
To apply, you can click the Go to site icon on our page.
Cheers,
Sarah
Currently, my dad is guarantor 100% for the property I am in. I am looking to refinance however most banks are only offering 20% from guarantor and rest I have to find. As this is not possible is there any banks out there that would do 100%?
Hello Marianna,
Thank you for your comment.
For refinancing, the first that you’d do is to speak to your current lender if they can grant you a 100% loan. If not, you may consider other options. While it is very little to no 100% home loans offer, there are ways that you can apply for a refinanced mortgage with little equity such as through a guarantor loan.
There are lenders that can offer you up to 100% LVR with a guarantor loan. Please check your eligibility with lenders on the list. Most importantly, please seek to advise from a mortgage broker so they can provide you with options based on your needs. I hope this helps.
Regards,
Jhezelyn
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
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
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.
Hi Tanya,
Thank you for contacting Finder.
Generally, if you apply for a home loan, the lender would look at and assess your income, job stability, assets, debts, and credit rating. Please check our guide about home loan guarantors if you’re looking for a home loan with a guarantor.
I’d also recommend that you seek a piece of 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
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
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 by selecting ‘Go to Site’ to head over to their website to apply.
I also recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that is more inclined to review your application.
I hope this helps,
Marc