How Much Deposit Do I Need with a Guarantor?

With a guarantor, you don’t need to have a deposit. Instead of a deposit, you use a family member’s property (usually a parent) as security or collateral for your home loan. A guarantor loan allows you to borrow 100% of the property value of your home, with 20% secured on your parent’s property and the other 80% secured on your property. 

Types of Guarantor Loans

There are four types of guarantor loans that are common in Australia:

1. Security guarantee: this is popular among first-time homebuyers who have an excellent credit history but no deposit. The guarantor uses property they own as security for the borrower’s mortgage. 
2. Security and income guarantee: these loans are most often used by parents helping their children who are just starting in the workforce. The child may not have enough income to purchase a home, so the parents’ property is used as security, and their income is used to prove someone can repay the loan. 
3. Family guarantee: this is when the guarantor is related to the borrower.
4. Limited guarantee: This is the most common type of guarantor loan combined with the security guarantee. The guarantor is only responsible for part of the loan (usually 20%).

Benefits and Risks

There are many benefits to guarantor loans:

• You can buy a property right away.
• You can avoid paying LMI.
• You can consolidate some minor debts. 

There are also risks to guarantor loans:

• If you default on your home loan, your guarantor is liable to repay what is owed. 
• If they cannot repay, they are at risk of losing their property. 

If you want to learn more about a guarantor loan, the experts at Mortgage House can answer any questions you may have.