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A Guide to Guarantor Home Loan Requirements

The main issue for many first-time homeowners and investors in the current property market is the ability to save a deposit.

Pulling together a big enough deposit remains a struggle for many would-be property buyers, especially when they have to pay for their living costs, including rent, at the same time.

While house prices have moderated due to Covid-19, previous years of strong growth that proceeded these softer market conditions means prices remain high for first home buyers.  

However, with interest rates at historic lows, the ability to afford mortgage repayments once you’re in the market has improved significantly.

One way to get a start on the property ladder sooner is by using guarantor home loans that can help get more prospective buyers into their first property.

Guarantor Loan Requirements

What is the structure of guarantor home loan?

Guarantor loans can be a great way for young people to achieve a deposit, but their ins and outs must be understood from the outset.

  1. A guarantor loan works by someone else (more on that a bit later) providing equity or security in their property to fund part, or the whole, deposit.
  2. A guarantor loan requirement is sufficient equity in the property offered as security.
  3. A guarantor doesn’t need to be involved in the loan for its entirely. Instead, it’s advisable that the property owner actually works towards getting the guarantor “released” from the loan, which can be achieved by paying down the mortgage or improving the property via renovations and therefore increasing its value.
  4. A guarantor is a person or persons who assumes responsibility for paying off the loan if you’re no longer able to meet your financial commitment. Essentially, the guarantor takes financial responsibility for servicing the home loan in the event that you default on your repayments. Even if the guarantee is only for 20 per cent of the entire loan, the guarantor will be wholly and severally responsible for the loan but doesn’t have ownership rights to the property.

The most common types of guarantee are:

Servicing Guarantee – Where the guarantor supports the borrowers loan facility with their income, and;

Security Guarantee – Where the guarantor offers additional security, such as part of the equity in the family home, to provide adequate security to the lender for their loan requirements.

A security guarantee is the most common and often used to help lower the loan-to-value ratio (LVR) below an 80% threshold thus allowing the borrower to avoid paying lender’s mortgage insurance (LMI).

The upside of the facility is that the guarantor doesn’t need to physically hand over any funds to the lender at the time of the approval. Instead, they simply assure the lender they will cover the shortfall if the borrower defaults.

Of course, for the facility to work, the guarantor must have sufficient equity in assets offered as security.

Guarantor home loans do require a number of checks and balances, however working with an expert finance broker will help smooth the process.

An example of how a guarantor loan can work is:

John and Jill want to buy a $750,000 home but have struggled to save a big enough deposit. In fact, they have only managed to save enough to pay the stamp duty and associated costs. As newly-weds, they approach John’s parents who have paid off their own home, who then agree to use $150,000 of their own equity to finance the required 20 per cent deposit for the couple.

Who can be a guarantor?

Checklist Flat Illustration

The main consideration with guarantor home loans is that they must be provided by someone who has a strong relationship with the buyer or buyers, which generally means immediate family members such as:

  • Parents
  • Siblings
  • Grandparents
  • Spouses
  • De facto partners.

It’s not the case that ‘just anyone’ can act as a guarantor.

The rules stipulate there must be a link between the guarantor and the guarantee, and there must also be a financial benefit for the party offering the guarantee.

Family guarantors are common because of the obvious link. Among the usual parties acting as guarantor are parents, siblings, grandparents, spouses and de factor partners. 

The financial benefit to family members is that they don’t need to dispose of their own asset in order to assist their relative (e.g. a child). Instead, the guarantee means they can put up equity while still retaining ownership and control of that asset.

Another way to look at is that it’s a way for a parent to pay forward some future ‘inheritance’ without penalising them financially in the present.

Another guarantor/guarantee relationship is one around legal entities such as a companies or trusts. In this case, the entity itself may not have sufficient assets to qualify for a loan, however those linked to the trust or company do. In this situation, a company director or trustee guarantees the legal entity’s loan arrangement.


There are a number of considerations for guarantor home loan requirements that the lender will take into account. These include:

  • Their age
  • Whether their property is in Australia
  • If they have sufficient equity
  • Whether they are currently employed

A guarantor also needs to be of sound mind and will need to seek both legal and financial advice before making the decision to act as a mortgage guarantor.

How much can you borrow?

First home buyer New

While the lending environment remains tight, there are more loan products on the market now that suit first home buyers. 

These are generally loans that offer higher loan to value ratios (LVR), which ultimately means that the deposit can be lower. 

For example, there are loans which require only a five to 10 per cent deposit, which makes it easier to save the required amount. 

On top of that, many first-timers might then use a guarantor to increase the deposit to 20 per cent of the purchase price which will remove the requirement to pay Lenders Mortgage Insurance or LMI.

In fact, by using a guarantor home loan, lenders are generally more flexible with their lending criteria, which means that prospective property buyers can usually access loans with LVRs in the 90 per cent range.

Of course, guarantor home loans do require a number of checks and balances, such as a requirement that you hold documentation for three days that will mean you have been deemed to have read and understood the requirements.

The risks of going guarantor

The primary risk of going guarantor is if the borrower defaults on the loan arrangement, you are legally required to make repayments, or cover the outstanding loan amount. This means the lender may choose to foreclose on that guarantee asset and sell it in order to recoup their losses.

The best way to mitigate this risk is simply through due diligence. Even when going into bat for your own kids, do a level-headed assessment of their ability to continue meeting their requirements before choosing to risk your own financial security.

Another consideration is that if you are guarantor on a loan facility, this encumbrance will be factored in as part of any loan application you make for yourself. Whether it be a servicing or security guarantee, your own lender will be assessing the effect of that commitment and its potential risk as part of their processes.

How is a guarantee released?

A guarantor doesn’t need to be involved in the loan for its entirely. Instead, it’s advisable that the property owner actually works towards getting the guarantor “released” from the loan.

Releasing a guarantor is not a difficult process, and often occurs in response to two scenarios:

  1. Increasing equity in the principal property – Say the guarantee was used to help a family member avoid LMI by introducing security that lower the LVR to 80% or less. If, after a year or two, the value of the home increases and/or the outstanding balance of the loan decreases to the point that the LVR reaches a below-80% threshold regardless of the guarantee security, then the guarantee can be released.
  2. Refinance – If the prime borrower refinances the property with a new lender who does not require the guarantee, the security can be released as part of the normal refinancing process. 

Keep this in mind too – the borrower’s financial situation will probably change over the coming years. They may receive a pay rise or build another asset base. Multiple events can occur which eventually render the guarantee unnecessary, and arrangement can be made at any time to release the beholding party.

How to find and compare guarantor home loans

The home loan market is broad and diverse, and most lenders offer the guarantee facility across most, if not all, of their products.

Also, having a guarantor doesn’t affect the basic terms of a loan, such as the interest rate. It’s more about assisting the outcome of the loan application.

That means your primary goal is to first choose a loan facility that provides the best terms and conditions for your particular situation. Once you’ve unearthed your ideal loan, it’s a matter of discussing the use of the guarantee as part of the application process.

But selecting the right loan for you can be challenging without the assistance of an experienced mortgage broker.

The world of banking can be a pretty daunting one for both novice and sophisticated investors, and since our establishment in 2002 we’ve focused on providing outstanding service and business standards.

This approach was vindicated when we were named Victoria’s favourite mortgage broker at the Investors Choice Awards.

So, if you’re considering buying a property, why not contact Intuitive Finance today to ensure you have the right information and expert support on your side from the very beginning.

Discuss your specific needs & formulate the right strategy for you. Get in touch to organise your complimentary 60min session today!

The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

Andrew Mirams

Andrew Mirams

Andrew Mirams is the Managing Director of Intuitive Finance and is a highly qualified mortgage advisor who holds dual diplomas in Financial Planning (Financial Services) and Banking and Finance (Mortgage Broking). Andrew’s expertise covers all aspects of lending for a diverse range of applications – from first home buyer loans or property upgrader loans, property investor loans, expatriates and loans for self-employed. With almost 30 years of experience, Andrew has been acknowledged by the mortgage industry as one of its best performers with multiple awards including regularly featuring in both the top 100 mortgage brokers list and Top 50 Elite business writers. Andrew was voted Victoria's favourite Mortgage Broker at the 2015 Investors Choice Awards, and won again for the same category at the 2017 Better Business Awards. The team at Intuitive Finance has also figured prominently by winning the 2016 "Best Independent Office (<5 brokers)" and "Best customer Service" Awards, and more recently at the 2017 MFAA National Awards, they also took out the "Best Customer Service" Award, a recognition which speaks for itself! Visit Intuitive Finance for more information.
Andrew Mirams

18 Comments. Leave new

Hi there,

Would like to ask if a credit check is still required even my love ones is the guarantor of my loan. reason behind this is my credit back ground is not too healthy when i was going though a separation with my defacto 8 years ago.

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Andrew Mirams
May 3, 2018 7:28 pm

Hi Joe,
Thanks for your question, it’s a really good one.
Just to clarify, are you asking if you are the guarantor, do you need a credit check? If so, the answer is that it depends on the lender who you approach and what is required as some do and others don’t.
If your question is as the borrower, then in every instance a credit check is required.

I hope this helps.

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Hi,
My brother and I are both looking to buy houses within the next year. My parents have offered to go guarantor for us both. Can someone be a guarantor for 2 separate properties at the same time?

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Andrew Mirams
August 8, 2018 4:59 pm

Hi Lucy,

That’s a great question. There are a few things to consider but the short answer (and good news) is Yes, they absolutely can be guarantor for more than 1 person at the same time.

If you wanted more information, we’d be thrilled to be able to assist you.

Reply

How much of the property do your parents need to own ? My mum and her partner re financed his property that he had previously owned with his ex wife, they re brought the home nearly 12 months ago. They own about 120000 of the home would they be considered to be a guarantor for me and my husband to buy a house ?

Reply

Hi Bec,
That’s a great question, thanks. What they need to have is enough equity in the property to be able to support the shortfall you have in your purchase. So it’s hard to give exact numbers here as we don’t what the figure is that you are looking to buy for but in principle, Yes, that could be sufficient to assist you and your husband buy your home.

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If my parents have property overseas (UK and NZ) could the still act as guarantor?

Reply

Hi Nick,
That is a great question.
The answer is Yes, they can act as a guarantor still, however they cannot use the overseas property as security to assist. And property security would have to be here in Australia.

Reply

Hi, I currently have a rental property & looking at getting another rental with the assistance of my parents going guarantor for the 2nd property. Do I, as the purchaser still need to meet criteria to the bank in regards to my lending / earning capacity as the banks have previously advised my earning capacity is not sufficient enough for 2 rental properties

Reply

Hi Adelle,
Thanks for your question, it is a very good one.
Yes, as the purchaser/owner, it is your responsibility to meet the lending criteria to see if you can meet the requirements for another loan.
We’d be more than happy to undertake a review of your current position and advise our thoughts on your capacity if that would be of interest to you?
Feel free to email us at info@intuitivefinance.com.au or call the office on 1300342505 and one of our experts will be happy to chat to you.

Reply

Hi Andrew,
Can parents with a cross-collateralized property portfolio still act as a guarantor? If so, who pays for the bank valuations for the multiple properties as i assume the bank would want to see the whole picture.

Reply

Hi Ben,
You question is quite a specific one to your situation but in principle, Yes they can still assist and be guarantors.
In the case of valuations, this is very specific to different lenders but as rule, the banks will pay/absorb the costs of a valuation or valuations.
I hope this helps?
Reach out if you’d like more information or to discuss further.

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Krystall Harvey
April 30, 2020 1:37 pm

Hi can you please explain to me more about how somebody can still go guarantor if they are in nz but can’t used their property to offer security? What’s the point in then going guarantor? I only ask this because I have many people in nz who could do this for me.

Reply

Hi Krystall,

Any guarantor and/or property needs to be in Australia in case a lender had to act on this.
Australian authorities don’t have jurisdiction in other countries.

Reply

Hi,

My dad has agreed to be my guarantor, but he does not work at all. Does he need to be working full time, or at all?

Reply

Hi,

This is a great question. If your Dad is guarateeing you from just a property or secuirty position then No, he doesn’t necessarily need to be working.
However, if he’s looking to assist you from a bank servicing position then he’d need to have income to be able to support your application.

I hope this helps?

We are happy to discuss if you’d like?

Reply

Hi, I recently enquired with my bank (CBA) about getting my parents released from being guarantors on my home loan.
I was told that the bank has now changed the LVR to 30%, locking them in for years more!
Is this even legal, and is there anything I can do about it.
I’m disgusted with their behavior, to say the least!

Reply

Hi Scott,
That does not sound right to me at all.
The only way they could enforce that would be if your property value had fallen, otherwise there doesn’t appear grounds to just hold your parents to the guarantee.
We’d be more than happy to review your position for you and try and assist if you’d like to take up that opportunity?

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