Can I Buy My First Home With a Guarantor?

Buying your first home can feel overwhelming, especially when you hear that you need a large deposit—sometimes as much as 20% of the property price. But what if saving that much feels impossible? The good news is that yes, you can buy your first home with a guarantor, and doing so can help you enter the property market faster.

This guide breaks down how guarantor loans work, the pros and cons, and everything else you need to know to decide if this is the right option for you.

What is a guarantor loan, and how does it work?

A guarantor loan allows you to purchase a home with the help of a family member (usually a parent) who uses their property as security for your loan.

Instead of relying solely on your savings, the lender considers the guarantor’s equity in their home as additional collateral.

This arrangement can help you borrow up to 100% of the property’s value without needing a large deposit or paying Lenders Mortgage Insurance (LMI).

Essentially, the guarantor reduces the lender’s risk, making it easier for you to get approved.

How can a guarantor help first-home buyers enter the market faster?

A guarantor loan can help you overcome two major hurdles:

1. No or low deposit requirements

Without a guarantor, most lenders require a deposit of at least 20% to avoid LMI. With a guarantor, you can often borrow up to 100% of the property value, meaning you don’t need a large deposit. For example:

• Property price: $500,000
• Deposit without guarantor: $100,000 (20%)
• Deposit with guarantor: $0 to $25,000 (5% or less)

This allows you to enter the market sooner instead of spending years saving a deposit.

2. Avoiding lenders mortgage insurance (LMI)

LMI is an insurance premium you pay when your deposit is less than 20%. It protects the lender, not you, and can cost thousands of dollars.

By using a guarantor, the lender is protected by the guarantor’s equity, so you don’t have to pay LMI.

Example: On a $500,000 home with a 10% deposit, LMI could cost around $10,000 to $15,000. A guarantor loan eliminates this cost.

Who can be a guarantor?

Most lenders require guarantors to be immediate family members, such as parents, siblings, or grandparents. However, parents are the most common choice. To qualify as a guarantor, they must:

• Have sufficient equity in their property.
• Meet the lender’s income and credit requirements.
• Understand and agree to the risks involved.

Some lenders may allow extended family members, such as uncles or aunts, to act as guarantors, but this varies between lenders.

Pros and cons of using a guarantor loan

While guarantor loans offer clear advantages, there are also risks to consider. Here’s a quick breakdown:

Pros

1. Enter the market sooner: No need to save a 20% deposit.
2. Avoid LMI: Save thousands on mortgage insurance.
3. Borrow up to 100%: Some lenders allow you to borrow the full purchase price.
4. Build equity faster: Owning a home sooner lets you benefit from rising property values.

Cons

1. Risk to the guarantor: If you default on the loan, the guarantor’s property may be at risk.
2. Strained relationships: Financial stress can impact family relationships.
3. Guarantor limitations: The guarantor may be restricted from borrowing against their property until the guarantee is released.
4. Your borrowing power is still assessed: While the guarantor provides security, you must still prove you can afford the loan repayments.

How to remove a guarantor from your loan

Once you have built up enough equity in your property or reduced your loan-to-value ratio (LVR) to 80%, you can request to remove the guarantor. Here’s how:

1. Increase your property value: Renovations or market growth can boost your equity.
2. Make extra repayments: Paying more than the minimum reduces your loan faster.
3. Refinance your loan: Switch to a standard home loan without a guarantor.

It’s important to regularly review your loan to see when the guarantor can be released.

Is a guarantor loan right for you?

A guarantor loan can be a great option if:

• You have a strong income but haven’t saved a large deposit.
• You want to avoid LMI costs.
• Your parents or close family members are willing and able to help.

However, both you and your guarantor need to understand the risks and responsibilities involved. If you default on the loan, your guarantor’s property could be impacted.

Alternatives to guarantor loans

If a guarantor loan isn’t the right fit, here are a few alternatives to explore:

1. First Home Guarantee (Home Guarantee Scheme) The federal government’s First Home Guarantee allows you to buy with just 5% deposit and no LMI.

Also read: How much deposit do I need as a first-home buyer in WA

2. Keystart loans (WA-specific) In WA, Keystart offers low-deposit loans with no LMI, requiring as little as 2% deposit.
3. First Home Owner Grant (FHOG) If you’re buying or building a new home, you could receive $10,000 through the FHOG, helping reduce upfront costs.

Also read: Guide to the WA first home buyers grant

4. Save for a larger deposit While it takes longer, saving for a larger deposit means avoiding the need for a guarantor and reducing risks for both parties.

Final thoughts

Buying your first home with a guarantor can be a game-changer, helping you enter the market faster, avoid LMI, and reduce upfront costs.

However, it’s not a decision to take lightly. Both you and your guarantor need to fully understand the risks and responsibilities.

If you’re considering a guarantor loan, speak to a mortgage broker who can guide you through your options and help you decide what’s best for your situation.

Related: Understanding stamp duty exemptions & concessions for FHB in WA