How a Family Guarantee Can Help With a Home Loan

Updated: November 2026

A family guarantee may help an eligible home buyer purchase with a smaller cash deposit or avoid Lenders Mortgage Insurance (LMI). Instead of contributing cash, a suitable family member provides additional security using part of the equity in their property.

A guarantee does not improve the buyer’s income or make the repayments more affordable. The borrower must still satisfy the lender’s income, expense, credit and home loan approval requirements.

A guarantee also places the supporting family member at genuine financial and legal risk. The structure should be understood carefully before anyone signs a loan or guarantee document.

If you are preparing to buy your first property, our First Home Buyer home loan service explains how CBM Mortgages can help you compare deposit and family-support options.

What is a family guarantee home loan?

A family guarantee home loan uses a guarantor’s property as additional security for part of the buyer’s home loan.

The guarantor is commonly a parent, although some lenders may accept another eligible close family member. The lender will apply its own relationship, age, income, property and credit-policy requirements.

The buyer owns the purchased property and remains responsible for the home loan repayments. The guarantor generally does not contribute cash or become a co-owner solely because of the guarantee.

How a family guarantee works

A typical structure involves two properties:

1. The home being purchased by the borrower.
2. The guarantor’s property, which provides limited additional security.

The lender takes security over the purchased property and a limited guarantee supported by the guarantor’s property.

The guarantee may cover the shortfall between the buyer’s available contribution and the amount required to bring the lender’s effective exposure within an acceptable LVR.

The exact structure varies by lender. Buyers and guarantors should not assume that the guarantee automatically covers 20% of the purchase price or that every lender calculates the amount in the same way.

Family guarantee example

Consider a first home buyer purchasing a property for $800,000 with $40,000 available as a 5% deposit.

Without another eligible pathway, LMI might apply at this LVR.

Under a family guarantee structure, the lender may take additional security over a limited portion of the guarantor’s property equity. The guarantee might be calculated to reduce the lender’s effective exposure to an acceptable level.

The actual guarantee amount could also need to cover LMI-equivalent exposure, capitalised costs or a lender-specific buffer. It must be calculated by the chosen lender using the purchase price, valuation, borrower contribution and proposed home loan.

The example excludes transfer duty where applicable, legal fees, inspections, settlement adjustments and other purchase costs.

What is a limited guarantee?

A limited guarantee restricts the guarantor’s exposure to a specified amount rather than guaranteeing the buyer’s entire home loan.

For example, the guarantee may cover:

• the amount needed to reach the lender’s acceptable effective LVR;
• a specified dollar amount;
• the guaranteed amount plus interest, fees and enforcement costs; or
• another amount defined in the lender’s guarantee documents.

The guarantee documents must be read carefully. A guarantor should not assume that the word “limited” excludes interest, fees or enforcement costs.

Independent legal advice can help the guarantor understand the actual limit and the circumstances in which the lender may enforce the guarantee.

Who can act as guarantor?

Requirements vary between lenders, but a guarantor will commonly need to:

• be an eligible close family member;
• own sufficient property equity;
• have an acceptable property for the lender’s security;
• demonstrate an appropriate financial position;
• understand the proposed guarantee;
• obtain independent legal advice where required;
• provide identification and financial documents; and
• meet the lender’s age, residency and credit-policy requirements.

Some lenders may not accept a guarantor who depends heavily on the secured property for retirement security or lacks the capacity to meet the guaranteed obligation.

The lender may also consider the guarantor’s existing home loan, retirement plans and ability to obtain future credit.

Does a family guarantee remove the need for a deposit?

Not necessarily. Some lenders may allow a family guarantee with a small borrower contribution, while others may require genuine savings or a minimum cash contribution.

The buyer will usually still need funds for costs such as:

• transfer duty where an exemption does not apply;
• conveyancing or legal fees;
• building and pest inspections;
• loan, valuation or settlement fees where applicable;
• insurance;
• council rates, water and strata adjustments;
• moving expenses; and
• a reasonable financial buffer after settlement.

A guarantee provides security to the lender. It does not place money in the buyer’s account.

Can a family guarantee avoid LMI?

Potentially. A suitable guarantee may reduce the lender’s effective exposure and remove the need for LMI under that lender’s policy.

This is not automatic. The outcome depends on:

• the lender’s family-guarantee policy;
• the buyer’s deposit and home loan amount;
• the lender’s valuation of both properties;
• the guarantee amount;
• the buyer’s borrowing capacity and credit assessment; and
• the property types and locations.

Even when LMI is avoided, the buyer still has a larger home loan than a buyer contributing a 20% deposit.

What are the risks for the guarantor?

A guarantee should be considered as seriously as taking out the debt personally.

Potential risks include:

• having to repay the guaranteed debt if the borrower cannot;
• interest, fees and enforcement costs being added to the amount owed;
• the lender seeking recovery against the guarantor’s secured property;
• the guarantee reducing the guarantor’s future borrowing capacity;
• difficulty selling or refinancing the secured property;
• possible damage to the guarantor’s credit position;
• pressure on retirement savings and plans;
• family conflict if the borrower experiences financial difficulty; and
• financial abuse where a person is pressured into guaranteeing a loan.

MoneySmart warns that a guarantor may have to repay the debt, and an asset used as security may be repossessed if the guaranteed obligation cannot be met.

Read the MoneySmart guidance on going guarantor before considering this option.

What are the risks for the borrower?

The borrower remains responsible for the home loan and should consider:

• the larger debt created by a smaller deposit;
• higher repayments and total interest costs;
• limited equity at the beginning;
• the effect of a fall in the property’s value;
• the family’s exposure if repayments cannot be maintained;
• possible restrictions when refinancing;
• the need to cooperate when releasing or changing the guarantee; and
• the effect on family relationships.

The buyer should not rely on the guarantee as a substitute for affordable repayments or a reasonable financial buffer.

How can a guarantor protect their position?

Before signing, a potential guarantor should:

1. Request the complete home loan and guarantee documents early.
2. Confirm the maximum guaranteed amount.
3. Check whether interest, fees and enforcement costs sit outside the stated limit.
4. Understand which property will support the guarantee.
5. Review the borrower’s proposed home loan and repayment position.
6. Consider the effect on retirement and future borrowing.
7. Ask how the guarantee can be reduced and released.
8. Obtain independent legal advice from a solicitor not acting for the borrower.
9. Consider independent financial advice.
10. Decline the arrangement if the risk is unaffordable or unclear.

The guarantor should never sign because of pressure or the assumption that “the lender would not approve it if it were risky”.

How is a family guarantee released?

A guarantee does not necessarily remain in place for the full home loan term.

Release may become possible when:

• the home loan balance has reduced;
• the purchased property has increased in value;
• the borrower makes additional repayments;
• the borrower contributes more funds;
• the effective LVR falls within the lender’s acceptable range; and
• the borrower continues to meet the lender’s credit and servicing requirements.

The lender may require a new valuation and full assessment before releasing the guarantee.

Release is not automatic. The borrower or guarantor generally needs to request it, and the lender must agree.

What if the purchased property falls in value?

If the property value falls, it may take longer to reduce the effective LVR and release the guarantor.

If the borrower sells while the total debt and sale costs exceed the sale proceeds, the lender may seek recovery under the guarantee, subject to the loan and guarantee terms.

This is one reason a guarantee should be limited carefully and reviewed over time.

Can grandparents act as guarantors?

Some lenders may accept an eligible grandparent or another close family member.

The lender may pay particular attention to:

• the guarantor’s age;
• retirement income and assets;
• the guarantor’s existing home loan;
• whether the secured property is the guarantor’s principal home;
• future medical and aged-care costs;
• the expected period of the guarantee; and
• the guarantor’s ability to obtain independent advice.

A guarantee should not jeopardise the guarantor’s housing or retirement security.

Family guarantee compared with other low-deposit options

The Australian Government 5% Deposit Scheme currently allows eligible first home buyers to apply with a minimum 5% deposit without LMI, but participating-lender credit criteria still apply. 【2-754e1b】【3-fd1a2b】

Read our guide to buying a home with less than a 20% deposit for a broader comparison.

Family guarantee compared with a cash gift

A family guarantee uses property equity as security. A cash gift transfers money to the buyer without repayment.

The two options affect the family differently:

• a guarantee puts the guarantor’s property and finances at risk;
• a gift permanently reduces the supporting family member’s available assets;
• a gift may affect Centrelink or estate planning;
• a guarantee can affect future borrowing and refinancing;
• a gift may need to satisfy lender source-of-funds requirements; and
• a guarantee requires lender approval and formal legal documents.

Our guide to how family can help with a first-home deposit explains gifts, family loans, guarantees and joint buying.

Documents commonly required

Depending on the lender, documents may include:

• identification for the borrower and guarantor;
• income, debt and expense information;
• home loan statements for the guarantor’s property;
• evidence of ownership;
• property valuations;
• loan and guarantee documents;
• independent legal-advice certificates;
• insurance documents; and
• evidence of the buyer’s deposit and purchase costs.

The guarantor may need to complete a separate lender assessment even though the guarantor is not the borrower.

How CBM Mortgages can help

CBM Mortgages can help borrowers compare family-guarantee and other low-deposit home loan structures.

We can help you:

• estimate the deposit and total funds required;
• calculate the indicative LVR;
• compare lender family-guarantee policies;
• estimate a potential limited-guarantee amount;
• compare LMI and government-backed alternatives;
• review the borrower’s borrowing capacity and repayments;
• identify documents likely to be required; and
• prepare for pre-approval and the property search.

CBM Mortgages does not provide legal or financial-planning advice. A potential guarantor should obtain independent advice before signing any guarantee.

Considering a family guarantee? Visit our First Home Buyer home loan service or contact CBM Mortgages to discuss the proposed deposit, home loan and guarantee structure.

Frequently asked questions

Disclaimer: This article provides general information only and does not constitute personal financial, legal, tax or credit advice. Lender policies, guarantee requirements and government programs can change. Borrowers and guarantors should consider independent advice appropriate to their circumstances before acting.