Buy Your First Home Sooner with a Family Guarantee Home Loan: What You Need to Know

A family guarantee allows a family member to use the equity in their own home to secure part of your home loan. This additional security helps you borrow more or avoid the need for Lenders Mortgage Insurance

Buying your first home in Australia is an exciting milestone—but with rising property prices and the challenge of saving a 20% deposit, many first-home buyers feel like the goal is just out of reach. Fortunately, there’s a strategy that can help you get into the market sooner without having to compromise too much: using a family guarantee home loan

A family guarantee (also known as a guarantor loan or security guarantee) is a practical way for a family member—usually a parent—to help you purchase a home without needing to gift you cash. Instead, they offer some of the equity in their own home as additional security. Let’s take a closer look at how it works, what the benefits are, and what you should consider before moving forward.

What Is a Family Guarantee Home Loan?

A family guarantee allows a family member to use the equity in their own home to secure part of your home loan. This additional security helps you borrow more or avoid the need for Lenders Mortgage Insurance (LMI)—a premium typically charged when your deposit is less than 20% of the property’s value.

It’s important to understand that the guarantor doesn’t give you any money. Instead, they provide a limited guarantee supported by the equity in their own property. This gives your lender added confidence and reduces their risk, which in turn can reduce your borrowing costs and get you into your first home faster.

How Does It Work?

Here’s a simple example:

• You want to buy a $600,000 home.

• Ideally, you’d need a 20% deposit ($120,000) to avoid paying LMI.

• But you’ve only saved $40,000 (around 6.6%).

  
  

By using a family guarantee, your parents might offer $80,000 worth of equity in their home to make up the shortfall. This brings your total security up to the 20% required, meaning the bank treats your loan as lower risk—even though you didn’t have the full deposit in cash.

Most lenders allow what's called a limited guarantee, where the guarantor only guarantees the shortfall (in this case, $80,000), rather than the full loan amount. This helps manage risk for both the borrower and the guarantor.

Who Can Be a Guarantor?

Typically, guarantors need to be:

• Immediate family members (most commonly parents, but sometimes siblings or grandparents)

• Australian citizens or permanent residents

• Property owners with sufficient equity in their own home

• Financially stable and able to understand the risks involved

Lenders will usually assess the guarantor’s financial position and may require legal and financial advice before proceeding.

What Are the Benefits?

1. Buy Sooner

The biggest advantage is speed. Instead of spending years saving for a 20% deposit, you can get into the property market sooner—especially helpful in a rising market where waiting could mean paying more later.

2. Avoid Lenders Mortgage Insurance (LMI)

LMI can cost thousands of dollars—sometimes tens of thousands depending on your loan size. A family guarantee can eliminate this cost entirely.

3. Borrow More, With Confidence

With additional security from a guarantor, lenders may be more willing to approve your loan or allow you to borrow a higher amount. This can give you access to homes that might otherwise be out of reach.

4. No Need to Use Parents’ Cash

Unlike a gifted deposit, your parents don’t need to give up any savings. They just provide a guarantee backed by their home’s equity.

What Are the Risks of a Family Guarantee Home Loan?

While a family guarantee can be a fantastic stepping stone, it’s important to be aware of the risks involved:

1. Guarantors Are Liable

If you fall behind on repayments and default on the loan, your lender can pursue your guarantor for the guaranteed portion. That could mean their property is at risk of being sold to recover the debt.

2. Limits on Guarantor’s Borrowing Power

Offering a guarantee can reduce your guarantor’s ability to borrow for their own needs—such as renovations, buying a car, or investing—because they’ve effectively tied up part of their equity

.

3. Emotional and Family Stress

Mixing family and money always needs to be approached carefully. Everyone involved should understand the commitment and communicate openly to avoid future disputes.

How to Remove the Guarantee Later

One of the best parts of a family guarantee is that it doesn't have to last forever.

Once your home has increased in value or you’ve paid down enough of the loan to reach 20% equity, you can apply to remove the guarantor from the loan. This is typically known as releasing the guarantee, and most lenders will allow it as long as you meet their standard criteria at the time.

It’s a good idea to stay in regular contact with your broker or lender to monitor your progress and plan for the release of the guarantee as soon as possible.

Steps to Set Up a Family Guarantee

If you’re considering a family guarantee, here’s how to get started:

1. Speak to a Mortgage Broker

An experienced broker like Etairos Finance can explain your options, assess your eligibility, and match you with lenders that support family guarantee structures.

2. Assess the Guarantor’s Position

Your guarantor will need to provide documents related to their property, income, and assets. The lender will assess whether they have enough equity to support the guarantee.

3. Legal and Financial Advice

Most lenders require the guarantor to get independent legal and financial advice to make sure they fully understand the implications.

4. Home Loan Approval and Familiy Guarantee Setup

Once everything is assessed and approved, the lender will set up the loan and register a mortgage over both your new property and the guarantor’s property (for the guaranteed amount only).

Final Thoughts

Using a family guarantee can be a powerful way to get your foot on the property ladder sooner, avoid unnecessary costs, and make homeownership a reality—even if you haven’t saved a massive deposit. It’s a modern solution that works especially well in high-cost markets where saving 20% can feel out of reach. That said, it’s not a decision to make lightly. It involves legal and financial responsibilities for your guarantor, and it’s crucial to work with an experienced mortgage broker who can guide you through the process and structure the loan correctly.

If you're thinking about buying your first home and have supportive family members willing to help, a family guarantee might be the boost you need. Reach out to a broker today to explore whether this strategy could work for you.

Need help navigating your first home purchase?

A qualified mortgage broker like Etairos can walk you through the process, assess your options, and make sure you and your family are protected every step of the way. Don’t leave it to chance—get expert advice and buy smarter.