Family guarantee home loans explained

It's Sunday lunch at your parents' place. Your dad puts down the tongs and says it. "Why don't we just go guarantor for you two?"

It's a generous offer. It's also a big one, for them and for you.

Here's how a family guarantee actually works, what it changes, and what it doesn't.

Two ways around a 20% deposit

Lenders usually charge Lenders Mortgage Insurance when you borrow more than 80% of the property's value. Saving the full 20% takes most couples years.

There are two common ways around it.

• The 5% Deposit Scheme. The federal government guarantees up to 15% of the value for your lender, so you can buy with 5% and no LMI. In Melbourne and Geelong the price cap is $950,000.
• A family guarantee. A parent or close relative offers equity in their own home as extra security for your loan. No government involved, and no government price cap.

On a $650,000 house, 5% is $32,500. Twenty per cent is $130,000. Either path is trying to close that gap.

How a family guarantee works

Your parents don't hand over cash. They don't go on your title either.

Instead, the lender takes a mortgage over part of their property as extra security. Most lenders let the guarantee be limited to a set amount, usually around what's needed to bring your loan down to 80% of the value.

So on that $650,000 house, with $32,500 of your own money in, the guarantee might cover roughly the gap to 20%. The rest of your loan is secured by your new home, like any other loan.

Every lender sets its own rules here. Some still want 5% from your own genuine savings. Others will accept less. How costs like stamp duty are covered varies too.

What it doesn't change

This is the bit that surprises people.

A guarantee helps with the deposit. It doesn't help you afford the repayments. You still borrow the full amount, and the lender still has to be satisfied you can repay it at their assessment rate, on your income alone.

So if your borrowing power is the thing holding you back, a guarantee won't fix it. With rates higher and borrowing capacity tighter this year, that's worth knowing before the conversation goes any further.

Want to see which path fits your numbers? Book a chat and we'll walk through both, no pressure.

What your parents are signing up for

Moneysmart's guidance for guarantors is blunt, and it's worth reading together.

• They could have to pay. If you can't make repayments, the lender can come to them for the guaranteed amount. If they can't pay, their home is the security.
• It can affect their own borrowing. A lender looking at a future loan for them will count the guarantee.
• It can show up on their credit file. A default on the guaranteed loan can be recorded against them.
• It can strain the relationship. Money and family get tangled fast when things go wrong.

Most lenders want the guarantor to get independent legal advice before signing, from a lawyer who isn't acting on your purchase. That's there to protect them. It's a good thing.

Getting the guarantee off

A guarantee doesn't have to last the life of the loan.

Once your loan drops to 80% of the property's value, through repayments, price growth or both, you can usually ask the lender to release it. That needs a new valuation and the lender's sign off.

If your parents plan to sell, refinance or downsize, the guarantee has to be dealt with first. That's worth talking about at the start, not the end.

Questions worth asking together

Before anyone signs, sit down and work through these.

• Would the 5% scheme do the job instead? If the home is under the cap, it might, without touching your parents' property.
• How much is being guaranteed? Get the exact figure in writing.
• When could it come off? Map a rough timeline to 80%.
• What happens if life changes? A job loss, a baby, a separation, or your parents retiring.

There's no single right answer. It depends on your numbers, their position, and how everyone feels about the risk.

We've helped over 100 first home buyers into the market, and the families who handle this well are the ones who talk it through early. If you'd like to do that with someone in the room who knows the lender rules, book a chat.

Let's get you into a home.

Figures verified 19 October 2026 against Moneysmart (Going guarantor on a loan, updated 9 September 2026), Aussie and CommBank 5% Deposit Scheme guides, and St.George and Credit Union SA family guarantee product pages.