Own your property sooner

A guarantor home loan is when another person, often a relative, uses the equity in their own property as extra collateral for your mortgage. This may enable you to enter the property market sooner as it reduces the amount of time you need to spend saving for a deposit. As most lenders require a 20% deposit, a guarantor is also often used to avoid paying Lender’s Mortgage Insurance (LMI).

Having a guarantor isn't necessarily going to increase your borrowing power, however it's an option to supplement the deposit requirements of a purchase. It may enable you to enter the housing market sooner as the security offered by the guarantor can reduce your deposit amount and potentially avoid the need for LMI. As a borrower, you will still need to meet eligibility requirements.

Most lenders require the guarantor to have a strong (usually family) relationship with the purchaser. As standard, they will accept the applicant’s:

• Parents or those of the co-applicant

• Adult children

• Spouse or de facto partner

Some lenders may approve other family members that are approved as exceptions however they need to have a good credit history and demonstrate a close relationship with the purchaser.
Friends, co-workers, former spouses or de facto partners will generally not be eligible as well as anyone with a bad credit history.

It is a big financial responsibility which is why it is important to get legal and financial advice so you can make a fully informed decision before becoming a guarantor. If at any time the buyer is unable to make their loan repayments, you will be responsible for any debt owed to the lender (for example the entire loan amount plus interest) or for a limited guarantee it could be just the portion of the loan that is subject to the guarantee. If you are unable to make the repayments, your home may be at risk if it was used as security. It may also affect your credit score if the repayments are not made on time and in full.

Going guarantor could also impact on your ability to sell your own house. Before being able to sell, you’ll need to be removed as guarantor or the loan that was guaranteed must be paid out in full. And if you wish to purchase property yourself, lenders will see that you are a guarantor, and this may impact your eligibility to secure a loan for yourself.