How a Family Guarantee Home Loan Works
In a standard guarantor home loan, your parent (or eligible family member) offers a portion of their property's equity as additional security for your loan. This bridges the gap between your deposit and the 20% required to avoid LMI.
| Scenario | Values |
|---|---|
| Your purchase price | $850,000 |
| Your deposit saved | $42,500 (5%) |
| Loan required | $807,500 (95%) |
| LMI without guarantee | ~$21,000 |
| Guarantee amount required | $127,500 (15% of purchase) |
| Your parents provide as guarantee | $127,500 equity from their property |
| LMI with guarantee | $0 |
The guarantee amount is typically limited — it doesn't need to cover the entire loan, just the portion above 80% LVR. This means your parents are not guaranteeing the whole $807,500 — just the $127,500 shortfall. Their exposure is limited.
Who Can Act as a Guarantor?
Eligibility for guarantors varies by lender, but most lenders accept:
- Parents (most common)
- Grandparents (accepted by some lenders, subject to age)
- Siblings (accepted by some lenders)
- De facto partners' parents (accepted by select lenders)
The guarantor must: own Australian property with sufficient equity, be willing and able to service the guarantee amount if needed, receive independent legal advice before signing, and be under the age threshold (usually 70–75, as the loan must be serviceable before the guarantor's expected retirement).
Risks the Guarantor Must Understand
The single most important thing for guarantors to know: if you (the borrower) default and the property is sold for less than the loan amount, the lender can pursue the guarantor for the shortfall up to the guarantee amount.
This means your parents' property could be at risk if you cannot make repayments. This is a real, not theoretical, risk. Every guarantor must receive independent legal advice from a solicitor before signing — and lenders require evidence that this advice has been received.
Strategies to manage guarantor risk:
- Release the guarantee as soon as possible — once you have built 20% equity through repayments and/or capital growth, request a guarantee release
- Most guarantee releases occur within 2–5 years for growing Sydney properties
- Budget conservatively — don't over-borrow just because the guarantee allows a larger loan
Guarantee vs First Home Guarantee: What Is the Difference?
These are two entirely different things:
- Family (Parental) Guarantee: Your parents use their property equity as additional security. They take on genuine financial risk. No government involvement.
- First Home Guarantee (government scheme): The federal government acts as guarantor — not your parents. No family property is at risk. Limited places available. See our First Home Guarantee guide.
The First Home Guarantee is generally preferable to a parental guarantee because it does not put family assets at risk. However, it requires a 5% genuine deposit (the parental guarantee can work with zero deposit) and has a $1.5M price cap.
How to Apply for a Family Guarantee Loan in Sydney
The family guarantee application involves both borrower and guarantor:
- Your broker assesses your borrowing capacity and the guarantee amount required
- Your parents' property is valued to confirm sufficient equity
- Both applications (borrower and guarantor) are submitted simultaneously
- Your parents receive independent legal and financial advice from a solicitor (required by lender)
- Loan documents signed by all parties
- Settlement and property purchase proceeds
See also our guarantor home loan guide for more detail. For additional parental guarantee mortgage resources, visit Home Loans Hub.
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📅 Book a Free Call Get in Touch →Frequently Asked Questions
Yes, some lenders allow you to borrow 100% of the purchase price plus costs using a parental guarantee on your parents' property. However, many brokers recommend having at least a 5% deposit saved — reducing the guarantee amount and your parents' exposure, while demonstrating genuine savings ability to the lender.
The risk is limited to the guarantee amount — typically the portion of your loan above 80% of your purchase price. For example, on an $800,000 purchase with no deposit, your parents would guarantee approximately $160,000 (20% of $800,000). Their entire property is not at risk — only the guarantee amount.
Once your loan balance drops below 80% of your property's value (through repayments and/or property price growth), you can apply to release the guarantee. In a growing Sydney market, this can happen in as little as 2–3 years. Your broker can arrange the guarantee release — it typically requires a new valuation and lender approval.
Yes, completely different. The First Home Guarantee is a government scheme where the government acts as guarantor — no family property is at risk. A parental guarantee uses your parents' real property as security. The government scheme requires a 5% deposit and has a $1.5M price cap. The parental guarantee can work with zero deposit but puts parents' assets at genuine risk.
No. Your parents don't need to own their property outright — they just need enough equity. For example, if their property is worth $1,200,000 with a $500,000 mortgage, their equity is $700,000. A guarantee of $150,000 is easily supportable from this equity. The lender will value their property and confirm the equity position.