What is a guarantor home loan?

The direct answer

A guarantor home loan allows a family member (usually a parent) to use the equity in their own property as additional security for your loan. This means you can buy a home with a smaller deposit - sometimes no deposit at all - and avoid paying Lenders Mortgage Insurance (LMI). The guarantor does not give you cash; they provide a limited guarantee secured against their property.

How a guarantor loan works in practice

When you apply for a guarantor home loan, your lender takes security over both your new property and a portion of your guarantor's property. The guarantee is typically limited to the difference between your deposit and a 20% deposit, plus a small buffer.

For example, if you are buying a $550,000 home in Adelaide with a $30,000 deposit (about 5.5%), the lender might require a guarantee of around $110,000 to bring the effective LVR below 80%. Your parents would provide this guarantee using equity in their own home. They do not hand over cash - it is a security arrangement.

Lendology has structured hundreds of guarantor loans for Adelaide families. We work with both parties to ensure everyone understands their obligations and the exit strategy for removing the guarantee.

Why Adelaide buyers use guarantor loans

With Adelaide median house prices continuing to rise, saving a 20% deposit takes longer than ever. A guarantor loan lets you enter the market sooner, start building equity, and avoid the cost of LMI - which on a $500,000 loan with 5% deposit could be $15,000 or more.

Many first home buyers in suburbs like Morphett Vale, Seaford, and Gawler use guarantor loans to get into the market while prices are within reach. Lendology compares 60+ lenders to find the best guarantor loan terms, as policies vary significantly between lenders.

Common questions

Frequently asked questions

Does the guarantor have to be a parent?

Most lenders require the guarantor to be an immediate family member - typically parents, but some lenders accept siblings, grandparents, or de facto partners' parents. The guarantor must own property with sufficient equity. Lendology checks each lender's specific family guarantee policies.

Is the guarantor responsible for the whole loan?

No. With a limited guarantee (the most common type), the guarantor is only responsible for a specific portion - usually the amount above 80% LVR plus a buffer. For example, on a $500,000 purchase with no deposit, the guarantee might be limited to around $130,000.

Can the guarantee be removed later?

Yes. Once you have built enough equity - typically when your loan balance drops below 80% of the property value - the guarantee can be released. This usually takes 2 to 5 years depending on property growth and repayments. Lendology monitors this for clients and initiates the release when the time is right.

What are the risks for the guarantor?

If you default on the loan and the sale of your property does not cover the debt, the lender can claim against the guarantor's property up to the guaranteed amount. This is a serious commitment. Both parties should get independent legal advice before proceeding.

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The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (ABN 22 624 144 501) trading as Lendology is an Authorised Credit Representative (Credit Representative Number 506866) of LMG Broker Services Pty Ltd, Australian Credit Licence 517192.

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