A family guarantee allows you to purchase a home, by effectively using the equity in another person’s property as a deposit.

Most lenders want you to come up with a 20% deposit in order to get a home loan, unless you’re prepared to pay Lender’s Mortgage Insurance (LMI).

If that is not possible, you could use a guarantor, who is normally a close family member, like your parents, to provide that equity.

Example:

You want to purchase a property for $500,000 and the lender requires you to have a $100,000 deposit.

If you only have $25,000 saved, it is possible to get your parents to act as a guarantor and provide the $75,000 from the equity in their own property to enable you to access a loan.

There are a number of advantages to using a guarantor loan:

• Purchase a property faster, as you do not need to save the deposit.  You just need to be able to service the loan, which is based on your income.
• You avoid the high costs that come with Lender’s Mortgage Insurance (LMI), which is applicable if you cannot provide a 20% deposit.
• You can still access the first home-owners grant and other incentives, such as stamp duty exemptions.
• The guarantor is able to limit their guarantee to only the portion of the loan they provide.
• It is possible to buy an investment property with a guarantor loan.

The main consideration for you if you choose a guarantor loan is that the person providing the guarantee is liable in the event that you are not able to make your loan repayments.

You will still also need to be able to service the full loan amount, so while you can access a higher LMI, it is vital that you can service the repayments.