A guarantor home loan lets a family member back your loan by offering the equity in their own property as extra security. Because the lender holds that security, your loan-to-value ratio drops, which means you can often buy with a very small deposit, or none, and avoid Lenders Mortgage Insurance. Many lenders offer a limited guarantee. That means the guarantor is responsible only for a set portion of the loan, usually the amount above 80% of the property's value, rather than the whole debt. You'll still usually need cash on hand for stamp duty, legal fees and other purchase costs. We'll work out how much your guarantor's property needs to cover before anyone signs.

Lenders are fussy about this, and most only accept close family, such as parents, siblings or grandparents. Your guarantor normally needs to own a property with enough equity, have a stable income or other financial strength, and be able to cope if they ever had to step in. Their age and their own debts are assessed too. Some lenders have extra rules for guarantors close to retirement. Friends and extended relatives are rarely accepted. If you're thinking of asking someone, it helps to have a rough idea of their situation first. We can check against lender policies before you have that conversation.

This is the most important question to ask, and your guarantor should hear a straight answer. If you can't pay, the lender can ask the guarantor to cover the shortfall, and if they can't, the lender can take action against the property they put up as security. Being a guarantor can also affect their own ability to borrow, because the guarantee counts as a liability. Lenders require guarantors to get independent legal advice before they sign, and for good reason. We encourage you to be open about your finances with your guarantor, and we'd rather lose a deal than see a family relationship put under strain.

It's possible, and most borrowers plan to. As you pay the loan down and your property grows in value, your equity builds up. Once your loan falls below roughly 80% of the property's value, many lenders will release the guarantor, and sometimes you'll need to refinance to make that happen. Fees and valuation costs may apply, and the lender will check that you can handle the loan on your own income. It's a good idea to talk about this timeline with your guarantor at the start, so everyone knows what to expect. We keep an eye on your loan as it matures, so you know when it's time to ask.

A co-borrower is on the loan with you, owns part of the property and shares responsibility for every repayment. Their income is counted too. A guarantor isn't on the title and isn't making repayments. They only provide security, so their income generally doesn't help you qualify. That's an important point. A guarantor can help with your deposit and let you skip LMI, but the lender will still check that your own income can support the loan. If your income is the limiting factor, a co-borrower might do more for you. We explain both options and tell you which fits your situation.

Neither one is better across the board. They solve the same problem in different ways. The First Home Guarantee lets eligible buyers purchase with a 5% deposit and no LMI, with the government backing the rest. The property has to be under the price cap for the area (in Sydney, that's $1.5 million), and you have to meet the other rules. Nobody else's property is on the line. A guarantor loan can work with a smaller deposit than 5%, or none, and it isn't tied to the scheme's price caps, but it does put your guarantor's home at risk. If you qualify for the scheme and would rather keep family out of it, that's often the simpler path. If you're buying above the cap, or you're short even of 5%, a guarantor might suit you better. We compare both using your actual numbers, and we check with the lender before assuming the two can be combined.