Ever-increasing rents. A rising cost of living. For first-home buyers, saving a deposit can be daunting. But if you’ve got a steady income and a supportive family, there’s a way to get into the market sooner. 

A guarantor home loan lets your parents (or a close family member) use their home’s equity to help you secure a loan, meaning you could buy or build a home without needing a big deposit upfront. 

It’s a common and achievable path, and Easystart is here to guide you and your guarantor every step of the way. So, what is a guarantor home loan, and how does it work? Let’s find out.

 

How can your parents help you buy a house?

“Can my parents help me buy a house?” We hear this question a lot, and the answer is yes. There are a few ways they can support you:

• Acting as a guarantor: The most common option. They use the equity in their home to secure part or all of your loan, helping you reduce the deposit needed.
• Contributing to the deposit: Some parents choose to gift or lend money towards your deposit, helping you meet lender requirements faster.
• Co-purchasing: In some cases, parents might buy the home with you as co-owners.

Every family is different, and we can help you explore the right option for your situation.

 

What is a guarantor on a home loan?

A guarantor on a home loan is typically a close family member (often a parent) who uses the equity in their own property as extra security for your loan. This arrangement can help you secure a home loan with a smaller deposit or, in some cases, no deposit at all.

Instead of providing cash, the guarantor offers a portion of their property’s equity to support your loan application. This additional security reduces the lender’s risk, potentially allowing you to avoid paying lenders mortgage insurance (LMI), which is usually required when borrowing more than 80% of a property’s value. 

It’s important to note that the guarantor is not responsible for making your regular loan repayments. However, if you cannot make your repayments, the guarantor will be liable for the portion of the loan they guaranteed. 

 

How does a guarantor loan work?

Here’s how the process typically works:

• You apply with your guarantor: A parent or close family member agrees to support your loan.
• Their property is used as security: They offer equity in their home to reduce the risk for the lender.
• The guarantor is released: This usually happens once the loan is paid off, the mortgage is refinanced, or you have specific arrangements in place with your lender. The guarantor can also request to be released once you’ve built up enough equity in your new home. 

 

What are the benefits of a guarantor loan?

Choosing a guarantor loan can give you some major advantages:

• Saving a 20% deposit takes time. But with a guarantor, you may be able to secure a loan with a low or even no deposit.
• With a guarantor, you may be able to avoid paying lenders mortgage insurance, which could save you thousands. 
• Having a guarantor gives you a faster pathway to home ownership, so you can stop renting sooner and start building equity.
• You have the flexibility to build your own home and choose a design that suits you. 

 

What are the risks for the guarantor?

It’s important for you and your guarantor to understand the downsides of this type of arrangement. 

If you can’t repay your loan, for whatever reason, your guarantor will be responsible, which may cause them severe financial stress. It’s also worth noting that having a guarantee in place can make it harder for the guarantor to sell their property. So, it’s not a decision they should take lightly. At Easystart, we can help you and your guarantor understand your roles clearly, with support and guidance throughout the process. 

 

Is a guarantor home loan right for you?

So, should you explore this option? You might be a good fit for a guarantor loan if you:

• have a steady income but limited savings
• want to buy or build sooner, without waiting years to save a deposit
• have parents or family willing and financially able to help.

Every situation is different, and our experts are here to help you find the right path.

 

Ready to explore a guarantor home loan?

If saving a deposit is holding you back, and you’ve been asking yourself, “What is a guarantor home loan?” this could be the key to getting into your first home sooner. With the support of your parents or a close family member and guidance from Easystart, you don’t have to do it alone.

We’re here to make the process simple, supportive, and tailored to you. Chat with our friendly finance team to find out if a guarantor loan is the right step towards owning your first home.